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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(MARK ONE)

[X]  

☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2017

2022

or

[   ]

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from          to

Commission File Number 001-34856

hhc-20221231_g1.jpg

THE HOWARD HUGHES CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

36-4673192

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification Number)


9950 Woodloch Forest Drive, Suite 1100, The Woodlands, Texas 77380
(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area code(281) 719-6100

Securities registered pursuant to Section 12(b) of the Act:

13355 Noel Road, 22nd Floor, Dallas, Texas

Title of each class:

75240

Trading Symbol(s)Name of each exchange on which registered:

(Address of principal executive offices)

(Zip Code)

(214) 741‑7744
(Registrant’s telephone number, including area code)

Securities Registered Pursuant to Section 12(b) of the Act:

Title of Each Class:

Name of Each Exchange on Which Registered:

Common Stock, $.01stock, par value

$0.01 per share

HHC

New York Stock Exchange

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES [X]  NO [   ]

Yes ☒No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  YES [   ]  NO [X]

Yes ☐No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YES [X]  NO [   ]

Yes☒No☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES [X]  NO [   ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   [X]

Yes☒No☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company”company�� in Rule 12b-2 of the Exchange Act.

Large accelerated filer   [X]

☒

Accelerated filer   [   ]

☐Emerging growth company☐

Non-accelerated filer   [   ] (Do not check if a smaller reporting company)

☐

Smaller reporting company   [   ]

Emerging Growth Company  [   ]

☐


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   [   ]

☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.   ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).   YES [   ]  NO [X]

Yes☐No ☒

As of June 30, 2017,2022, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $4.2$2.2 billion based on the closing sale price as reported on the New York Stock Exchange.

As

The number of shares of common stock, $0.01 par value, outstanding as of February 19, 2018, there were 43,351,812 shares of the registrant’s common stock outstanding.

20, 2023 was 49,801,858.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Proxy Statement for its 20172022 Annual Meeting of Stockholders are incorporated by reference in Items 10, 11, 12, 13 and 14 of Part III of this Annual Report on Form 10-K. The registrant intends to file its Proxy Statement with the Securities and Exchange Commission within 120 days of the registrant’s fiscal year ended December 31, 2017.

2022.



Table of Contents
Index to Financial Statements
TABLE OF CONTENTSPage
Item 1.
4
12
Item 1B.
25
Item 2.
26
Operating Assets
26
Master Planned Communities
30
Seaport
31
Strategic Developments
32
Item 3.
33
Item 4.
33
Item 5.
34
Item 6.
35
Item 7.
36
Overview
37
Results of Operations
42
Liquidity and Capital Resources
57
Critical Accounting Policies
61
Recently Issued Accounting Pronouncements and Developments
61
Item 7A. 
62
Item 8.
63
64
65
68
Consolidated Balance Sheets
68
Consolidated Statements of Operations
69
Consolidated Statements of Comprehensive Income (Loss)
70
Consolidated Statements of Equity
71
Consolidated Statements of Cash Flows
72
74
111
Item 9.
115
Item 9A. 
115
Item 9B.
115
Item 10.
116
Item 11.
116
Item 12.
116
Item 13.
116
Item 14.
116
Item 15.
117
Item 16.
Form 10-K Summary
121
Signatures
122

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TABLE OF CONTENTS

Item No.

    

    

    

Page
Number

 

Part I 

 

 

 

 

 

 

 

1. 

 

Business

 

2

 

1A. 

 

Risk Factors

 

8

 

1B. 

 

Unresolved Staff Comments

 

19

 

2. 

 

Properties

 

19

 

3. 

 

Legal Proceedings

 

24

 

4. 

 

Mine Safety Disclosure

 

25

 

 

 

 

 

 

 

Part II 

 

5. 

 

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

25

 

6. 

 

Selected Financial Data

 

27

 

7. 

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

28

 

7A. 

 

Quantitative and Qualitative Disclosures About Market Risk

 

63

 

8. 

 

Financial Statements and Supplementary Data

 

64

 

9. 

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

64

 

9A. 

 

Controls and Procedures

 

64

 

9B. 

 

Other Information

 

65

 

 

 

 

 

 

 

Part III 

 

10. 

 

Directors, Executive Officers and Corporate Governance

 

67

 

11. 

 

Executive Compensation

 

67

 

12. 

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

67

 

13. 

 

Certain Relationships and Related Transactions, and Director Independence

 

67

 

14. 

 

Principal Accountant Fees and Services

 

67

 

 

 

 

 

 

 

Part IV 

 

15. 

 

Exhibits and Financial Statement Schedule

 

67

 

 

 

 

 

 

 

Signatures 

 

 

 

70

 

i


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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This

Throughout this Annual Report on Form 10-K (“(Annual Report), references to the “Company,” “HHC,” “we,” and “our” refer to The Howard Hughes Corporation and its consolidated subsidiaries, unless the context requires otherwise. This Annual Report”)report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended,(Securities Act) and Section 21E of the Securities Exchange Act of 1934.1934 (Exchange Act). All statements other than statements of historical fact included in this Annual Report are forward-looking statements. Forward-looking statements give our current expectations relating to our financial condition, results of operations, plans, objectives, future performance, andor business. You can identify forward-looking statements by the fact that they do not relate strictly to current or historical facts. These statements may include words such as “anticipate,” “believe,” “estimate,” “expect,” “project,“forecast,” “forecast,“intend,” “likely,” “may,” “plan,” “intend,“project,” “believe,” “may,“realize,” “should,” “would,“transform,” “likely,“would,” and other wordsstatements of similar expression. Forward-looking statements should not be relied upon. They give our expectations about the future and are not guarantees. We caution you not

Forward-looking statements include:

–accelerated growth in our core Master Planned Communities (MPC) assets
–expected performance of our stabilized, income-producing properties and the performance and stabilization timing of properties that we have recently placed into service or are under construction
–forecasts of our future economic performance
–expected capital required for our operations and development opportunities for our properties
–impact of technology on our operations and business
–expected performance of our segments
–expected commencement and completion for property developments and timing of sales or rentals of certain properties
–estimates of our future liquidity, development opportunities, development spending and management plans
–the potential impact of a resurgence of the COVID-19 pandemic on our business, our tenants and the economy in general, and our ability to relyaccurately assess and predict such impacts on these forward-looking statements.

In this Annual Report, we make forward-looking statements discussingthe financial condition, results of operations, cash flows and performance of our expectations about:

·

budgeted costs, future lot sales and estimates of NOI and EBT;

Company; and

·

capital required for our operations and development opportunities for the properties in our Master Planned Communities (“MPC”), Operating Assets and Strategic Developments segments;

–descriptions of assumptions underlying or relating to any of the foregoing

·

expected commencement and completion for property developments and timing of sales or rentals of certain properties;


·

expected performance of our MPC and Operating Assets segments, as well as other current income producing properties such as our condominiums;

·

forecasts of our future economic performance; and

·

future liquidity, development opportunities, development spending and management plans.

These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance and achievements to materially differ from any future results, performance and achievements expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include:


–macroeconomic conditions such as volatility in capital markets, and a prolonged recession in the national economy, including any adverse business or economic conditions in the homebuilding, condominium-development, retail and office sectors
–our inability to obtain operating and development capital, including our inability to obtain or refinance debt capital from lenders and the capital markets
–rising interest rates and inflation
–the availability of debt and equity capital
–our ability to successfully identify, acquire, develop and/or manage properties on terms that are favorable to us
–our ability to compete effectively, including the potential impact of heightened competition for tenants and potential decreases in occupancy at our properties
–general inflation, including core and wage inflation; commodity and energy price and currency volatility; as well as monetary, fiscal and policy interventions in anticipation of our reaction to such events, including increases in interest rates
–mismatch of supply and demand, including interruptions of supply lines
–extreme weather conditions or climate change, including natural disasters, that may cause property damage or interrupt business
–the impact of a resurgence of COVID-19 on our businesses, our tenants and the economy, including as described above
–contamination of our property by hazardous or toxic substances
–terrorist activity, acts of violence, or breaches of our data security
–losses that are not insured or exceed the applicable insurance limits
–our ability to lease new or redeveloped space
–our ability to obtain the necessary governmental permits for the development of our properties and necessary regulatory approvals pursuant to an extensive entitlement process involving multiple and overlapping regulatory jurisdictions, which often require discretionary action by local governments
–increased construction costs exceeding our original estimates, delays or overruns, claims for construction defects, or other factors affecting our ability to develop, redevelop or construct our properties
HHC 2022 FORM 10-K | 2

·

our inability


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Index to obtain operating and development capital, including our inability to obtain or refinance debt capital from lenders and the capital markets;

Financial Statements

·

a prolonged recession in the national economy and adverse economic conditions in the homebuilding, condominium development, retail, office and hospitality sectors;

–regulation of the portion of our business that is dedicated to the formation and sale of condominiums, including regulatory filings to state agencies, additional entitlement processes and requirements to transfer control to a condominium association’s board of directors in certain situations, as well as potential defaults by purchasers on their obligations to purchase condominiums

·

our inability to compete effectively;

–fluctuations in regional and local economies, the impact of rising interest rates on residential housing and condominium markets, local real estate conditions, tenant rental rates and competition from competing retail properties and the internet

·

potential natural disasters (including any potential negative impact from Hurricane Harvey on the Houston, Texas region), terrorist activity, acts of violence, breaches of our data security, contamination of our properties by hazardous or toxic substances, or other similar disruptions, as well as losses that are not insured or exceed the applicable insurance limits;

–inherent risks related to disruption of information technology networks and related systems, including cyber security attacks

·

our ability to lease new or redeveloped space;

–our ability to attract and retain key personnel

·

our ability to obtain the necessary governmental permits for the development of our properties and necessary regulatory approvals pursuant to an extensive entitlement process involving multiple and overlapping regulatory jurisdictions, which often require discretionary action by local governments;

–our ability to collect rent and attract tenants

·

increased construction costs exceeding our original estimates, delays or overruns, claims for construction defects, or other factors affecting our ability to develop, redevelop or construct our properties;

–our indebtedness, including our $750,000,000 5.375% Senior Notes due 2028, $650,000,000 4.125% Senior Notes due 2029 and $650,000,000 4.375% Senior Notes due 2031, contain restrictions that may limit our ability to operate our business

·

regulation of the portion of our business that is dedicated to the formation and sale of condominiums, including regulatory filings to state agencies, additional entitlement processes and requirements to transfer control to a condominium association’s board of directors in certain situations, as well as defaults by purchasers on their obligations to purchase condominiums;

–our directors’ involvement or interests in other businesses, including real estate activities and investments

1

–our inability to control certain of our properties due to the joint ownership of such property and our inability to successfully attract desirable strategic partners

–catastrophic events or geopolitical conditions, such as the COVID-19 pandemic and resurgence of different variants that may disrupt our business; and

Table–the other risks described in Item 1. Business, Item 1A. Risk Factors and Item 7. Management’s Discussion and Analysis of Contents

Financial Condition and Results of Operations of this Annual Report

·

risks associated with our relationships with homebuilders and with our ownership and management of hotels;


·

fluctuations in regional and local economies, the residential housing and condominium markets, local real estate conditions, tenant rental rates and competition from competing retail properties and the internet;

·

our ability to retain key executive personnel;

·

our ability to collect rent, attract tenants and customers to our hotels;

·

our substantial indebtedness, including our $1,000,000,000 5.375% senior notes due 2025, that contain restrictions which may limit our ability to operate our business;

·

our directors involvement or interests in other businesses, including real estate activities and investments;

·

our inability to control certain of our properties due to the joint ownership of such property and our inability to successfully attract desirable strategic partners;

·

substantial stockholders having influence over us, whose interests may be adverse to ours or yours;

·

the potential impact of the recently enacted U.S. tax reform legislation; and

·

the other risks described in “Item 1A. Risk Factors.”

Any factor could, by itself, or together with one or more other factors, adversely affect our business, results of operations, plans, objectives, future performance or financial condition. There may also be otherOther factors that we have not described in this Annual Report thatalso could cause results to differ from our expectations. Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. These forward-looking statements present our estimates and assumptions only as of the date of this Annual Report. Except as may be required by law, we undertake no obligation to modify or revise any forward-looking statements to reflect events or circumstances occurring after the date of this Annual Report.

PART I

Throughout this Annual Report, references


HHC 2022 FORM 10-K | 3
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PART I

Item 1.  Business

OVERVIEW

Our award-winning assets include one of the nation's largest portfolios of master planned communities (MPCs) spanning approximately 118,000 gross acres, as well as operating properties, strategic developments, and other unique assets across seven states from New York to the “Company”, “HHC”, “we” and “our” refer to The Howard Hughes Corporation and its consolidated subsidiaries, unless the context requires otherwise.

ITEM 1.  BUSINESS

OVERVIEW

Hawai‘i. We create timeless placessome of the most sought-after communities in the country by curating an environment tailored to meet the needs of our residents and extraordinary experiences that inspire peopletenants. Our unique business model allows us to drive outsized risk-adjusted returns while driving sustainable,maintaining a sharp focus on sustainability to ensure our communities are equipped with the resources to last several decades.


We operate through four business segments: Operating Assets, MPCs, Strategic Developments and Seaport. We create a unique and continuous value-creation cycle through operational and financial synergies associated with our three primary business segments of Operating Assets, MPCs and Strategic Developments. In our MPC segment, we plan, develop and manage small cities and large-scale, mixed-use communities, in markets with strong long-term growth and value for our shareholders. We specialize infundamentals. This business focuses on the horizontal development of MPCs, inresidential land. The improved acreage is then sold to homebuilders who build and sell homes to new residents. New homeowners create demand for commercial developments, such as retail, office, multi-family and self-storage offerings. We build these commercial properties through Strategic Developments at the ownership, management and redevelopment of revenue-generating real estate assets (“Operating Assets”) and inappropriate time using the development of other real estate assets in the form of entitled and unentitled land and residential condominium developments (“Strategic Developments”). We expect to continue to generate income from the growth of our Operating Assets portfolio, through the continued development of strategic project opportunities, and from ongoing MPC land development and homesite sales. We generate cash flow harvested from the sale of land into homebuilders, which helps mitigate development risk. Once the commercial developments are completed, the assets transition to Operating Assets, which increase recurring Net Operating Income (NOI), further funding our Strategic Developments. New office, retail and other commercial amenities make our MPC residential land more appealing to buyers and increase the velocity of land sales at premiums that typically exceed the broader market. This increased demand for residential land generates more cash flow from MPCs, thus continuing the value-creation cycle. Our fourth business andsegment, the operationsSeaport, is one of our operating properties which funds the development of strategic development opportunities which is expected to generate meaningful growth in recurring income in our Operating Assets segment. We are focused on maximizing value from all of our assets, and we continue to develop, acquire and manage our assets to achieve this goal. We are headquartered in Dallas, Texas, andfew multi-block districts largely under private management by a single owner in New York New York,City. This historic waterfront area is being revitalized and ourenhanced into a mixed-use neighborhood featuring unique culinary and entertainment offerings.

Our assets are located across the United States.

We were incorporated in Delaware in 2010. Through our predecessors, we have been in business for several decades. We operate our business in three segments: MPCs, Operating Assets and Strategic Developments. Financial information about each of our segments is presented in Note 17 – Segments of our audited consolidated financial statements.

Our Competitive Strengths

We believe that we distinguish ourselves from other real estate companies through the following competitive strengths:

2

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·

Management Team with Track Record of Value Creation.  We have completed the development of over 4.2 million square feet of office and retail operating properties, 1,645 multi-family units and 913 hospitality keys since 2011. Excluding land which we own, we have invested approximately $1.6 billion in these developments, which is projected to generate a 9.9% yield on cost or $155.1 million per year of net operating income (“NOI”) upon stabilization. At today’s market cap rates, this implies value creation to our shareholders of roughly $1.0 billion. These investments and returns exclude condominium development as well as projects under construction such as the Seaport District NYC. Our investment of approximately $283.2 million of cash equity in these projects since inception, is projected to generate a 29.7% return on cash equity assuming a 5.5% cost of debt, which approximates our historical cost. In addition, we have either opened or have under construction 1,381 condominium units in Ward Village, which have approximately 93% units sold at a targeted profit margin, excluding land costs, of approximately 30%.

·

Unique, Diverse Portfolio.  We own a portfolio with many diverse market leading assets located across 12 states with a combination of steady cash flow and longer term value creation opportunities.

·

Unparalleled Value Creation Opportunity.  We own one of the preeminent development pipelines in the world with over 50.0 million square feet of vertical entitlements remaining across our portfolio. This represents approximately 12 times the 4.2 million square feet we have delivered in the last seven years without having to acquire another development site or external asset, which we believe is a significant competitive advantage over other real estate development corporations.

·

Low Leverage, Flexible Balance Sheet.  As of December 31, 2017, our total debt equaled approximately 42.5% of the book value of our total assets, which we believe is significantly less than the market value. Our net debt, which includes our share of debt of Real Estate and other Affiliates less cash and Special Improvement District (“SID”) and Municipal Utility Districts (“MUD”) receivables, equaled approximately 23.3% of our total enterprise value. We finished the year with approximately $861.1 million of cash on hand. We have focused our efforts on obtaining non-recourse debt for both our construction financing and long-term fixed rate mortgage financing and have limited cross-collateralization across the portfolio. Our low leverage, with a focus on project specific financing, provides substantial insulation against potential downturns and provides usStates with the flexibility to evaluate new real estate project opportunities.   

·

Self-Funded Business Plan.  One of our key differentiators is our ability to self-fund significant portions of our new development without having to dispose of our recently completed developments or raise additional equity. In normal years, our residential land sales, recurring NOI and profits on the sales of condominium units generate substantial amounts of free cash flow which is used to fund the equity required to execute our many development opportunities.Furthermore, we are not required to pay dividends and are not restricted from investing in any asset type, amenity or service, providing further flexibility as compared to many other real estate companies which are limited in their activities because they have elected to be taxed as real estate investment trusts (“REIT”). We believe our structure currently provides significant financial and operating flexibility to maximize the value of our real estate portfolio.

Overview of Business Segments

We operate in three complementary business segments: Operating Assets, MPCs and Strategic Developments. The combination of these three segments provides both operational and financial synergies. The vast majority of the assets in our Operating Assets segment are located within our MPCs. This helps us achieve scale and, in most cases, critical mass, which leads toto; pricing power in lease and vendor negotiations; increased ability to attract, hire and retain the best local leadership and leasing teams; flexibility to meet changing customer demands; and enhanced ability to identify and capitalize on emerging opportunities. InOur MPCs, including our MPC segment, we plan, develop and manage small cities in markets with strong long-term growth fundamentals. This business involves the horizontal development of residential land and selling the improved acreage to homebuilders for the eventual sale of homes to new residents. Combined, our MPCsFloreo (formerly named Trillium) joint venture, span over 80,000approximately 118,000 gross acres, with over 7,600approximately 25,000 residential acres of land remaining to be developed and sold across our portfolio.in high-demand geographic areas. In addition to the residential land, our MPC segment contains more than 3,300approximately 13,000 acres designated for commercial development or sale to non-competing users such as hospitals. This land is held in our MPC segment until we identify demand for a new commercial development, at which point the land is transitioned into our Strategic Developments segment.

The operational synergies


We were incorporated in Delaware in 2010. Through our predecessors, we have been in business for several decades. Financial information about each of combining our three business segments createsis presented in Note 18 - Segments in the Notes to Consolidated Financial Statements under Item 8 of this Form 10-K.


Our Competitive Strengths

We distinguish ourselves from other real estate companies through the following competitive strengths:
–Track Record of Value Creation. We have completed the development of 7.5 million square feet of office and retail operating properties, 4,637 multi-family units and 909 hospitality keys since 2011. Excluding land which we own, we have invested approximately $3.0 billion in these developments, which is projected to generate a unique9.3% yield on cost, a significant spread over market cap rates which, in turn, has generated meaningful value for our shareholders. These investments and continuous value-creation cycle. We sell land to residential homebuilders in our MPC segment and the new homes attract residents to our cities looking for places to work and shop. New homeowners create demand for commercial developments,returns exclude condominium development as well as projects under construction such as retail, office, self-storagethe Seaport. We exclude condominium developments since they do not result in recurring NOI, and hospitality offerings.we exclude projects under development due to the wider range of NOI they are expected to generate upon stabilization. In Ward Village, we have either opened or have under construction 3,591 condominium units, which have approximately 97.5% units sold as of December 31, 2022.
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–Unique, Diverse Portfolio. We build these commercial properties through our Strategic Developments segment when the timing is

3

Tableown a portfolio with many diverse market-leading assets located across seven states with a combination of Contents

right, which helps mitigate development risk, using thesteady cash flow harvestedand longer-term value creation opportunities.


–Significant Value Creation Opportunity. We have an exceptional development pipeline with over 100 million square feet of vertical entitlements remaining across our portfolio. This represents approximately 13 times the 7.5 million square feet we have delivered in the last twelve years without having to acquire another development site or external asset, which we believe is a significant competitive advantage over other real estate development corporations.

–Flexible Balance Sheet. We ended the year with $626.7 million of cash on hand. As of December 31, 2022, our total debt equaled approximately 49.4% of the book value of our total assets, which we believe is significantly less than our market value. Our net debt, which includes our share of debt of unconsolidated ventures less cash and Special Improvement District (SID) and Municipal Utility District (MUD) receivables, equaled approximately 45.9% of our total enterprise value. Unconsolidated ventures refer to partnerships or joint ventures primarily for the development and operation of real estate assets. Our strong balance sheet provides substantial insulation against potential downturns and provides us with the flexibility to evaluate new real estate project opportunities.

–Self-Funded Business Plan. One of our key differentiators is our ability to self-fund significant portions of our new development without having to dispose of our recently completed developments. Our residential land sales, recurring NOI and profits on the sales of condominium units generate substantial amounts of free cash flow, which is used to fund the equity required to execute our many development opportunities.Furthermore, we are not required to pay dividends nor are we restricted from investing in any asset type, amenity or service, unlike many other real estate companies, which are limited in their activities because they have elected to be taxed as a real estate investment trust (REIT). We believe our structure currently provides us with significant financial and operating flexibility to maximize the salevalue of land to homebuilders. Once these strategic developments are completedour real estate portfolio.

Competition

The nature and stabilized, they transitionextent of our competition depends on the type of property involved. With respect to our Operating Assets segment and increase our recurring NOI, further fundingLandlord Operations within the equity requirementsSeaport segment, we primarily compete for retail, office and multi-family tenants. We also compete for residential tenants in our Operating Assets segment. We believe the principal factors that retailers consider in making their leasing decisions include: (1) consumer demographics; (2) age, quality, design and location of properties; (3) neighboring real estate projects that have been developed or that we, or others, may develop in the future; (4) diversity of retailers and anchor tenants at shopping center locations; (5) management and operational expertise; and (6) rental rates. The principal factors influencing tenant leasing decisions for our office space include: (1) rental rates; (2) attractive views; (3) amenities; (4) walkable retail; (5) commute time; (6) efficiency of space; and (7) demographics of the available workforce.For residential tenants of our multi-family properties in our Operating Assets segment, we believe the principal factors that impact their decision of where to live are: (1) walkability/proximity to work; (2) amenities; and (3) the best value for their money.

With respect to our MPC segment, we compete with other landholders and residential and commercial property developers primarily in the development of properties within Las Vegas, Nevada; the greater Houston, Texas area; Phoenix, Arizona; and the Baltimore, Maryland/Washington, D.C. markets. Significant factors that we believe allow us to compete effectively in this business include:
–the size and scope of our MPCs
–strong reputation within the industry and years of experience serving our communities
–the recreational and cultural amenities available within our communities
–the commercial centers in the communities, including the properties that we own and/or operate or may develop
–our relationships with homebuilders
–our level of debt relative to total assets
–the proximity of our developments to major metropolitan areas

With respect to the Managed Businesses and Events & Sponsorships within our Seaport segment, the restaurant and event industry is intensely competitive with respect to the type and quality of food, price, service, restaurant or event location, personnel, brand, attractiveness of facilities, availability of carryout and home delivery, internet and mobile ordering capabilities and effectiveness of advertising and marketing. We compete in the New York area for guests, management and hourly personnel.

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With respect to our Strategic Developments segment. New office, retailsegment and certain assets subject to development in our Seaport segment, including 250 Water Street, our direct competitors include other commercial property developers and other owners of commercial amenities makereal estate that engage in similar businesses. With respect to our MPCStrategic Developments segment, we also compete with residential land more appealingcondominium developers. With significant existing entitlements, we hold an advantage over many of our competitors in our markets in that we already own and control, or have significant influence over, substantial acreage for development. We also own the majority of square feet of each product type in many of our markets.

Available Information

Our website address is www.howardhughes.com. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other publicly filed documents, including all exhibits filed therewith, are available and may be accessed free of charge through the Investors section of our website under the SEC Filings subsection, as soon as reasonably practicable after those documents are filed with, or furnished to, buyersthe SEC at www.sec.gov. Also available through the Investors section of our website are reports filed by our directors and increaseexecutive officers on Forms 3, 4 and 5, and amendments to those reports. Our website and included or linked information on the velocitywebsite are not incorporated into this Annual Report on Form 10-K. From time to time, we use our website as an additional means of land sales at premiums that exceeddisclosing public information to investors, the broader market. Increased demand for residential land generates more cash flow from our MPC segment, thus continuing the cycle.

media and others interested in us.


BUSINESS SEGMENTS

The following further describes our threefour business segments and provides a general description of the assets comprising these segments. Refer to Item 2. Properties foradditional details on individual properties, including assets by reportable segment, geographic location and predominant use at December 31, 2022. This section should be referred to when reading “ItemItem 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations”Operations, which contains information about our financial results and operating performance for our business segments.

Master Planned Communities. Our MPC segment includes the development and sale of residential and commercial land, primarily in large-scale, long-term projects. Our five MPCs include The Woodlands, Bridgeland, and The Woodlands Hills in Houston; Summerlin in Las Vegas; and Columbia, Maryland. These developments often require decades of investment and continued focus on the changing market dynamics surrounding these communities. We believe that the long-term value of our MPCs remains strong because of their competitive positioning in their respective markets, our in-depth experience in diverse land use planning and the fact that we have substantially completed the entitlement processes within the majority of our communities.

Our MPCs have won numerous awards for design excellence and for community contribution. Among its many honors, Summerlin was recently ranked fourth on the list of best-selling MPCs by RCLCO. Bridgeland was recently recognized by the National Association of Home Builders with four Silver awards, including “Best Landscape Design – Master Plan.” Hughes Landing in The Woodlands recently received Gold and Commendation awards from the International Council of Shopping Centers at the 2017 U.S. Design and Development Awards competition.

We expect the competitive position, desirable locations and land development expertise to drive the long-term growth of our MPCs. As of December 31, 2017, our MPCs include approximately 11,031 remaining saleable acres of land. Residential sales, which are generated primarily from the sale of finished lots and undeveloped superpads to residential homebuilders and developers, include standard and custom parcels designated for detached and attached single family homes, and range from entry-level to luxury homes. Superpad sites are generally 20 to 25-acre parcels of unimproved land where we develop and construct the major utilities (water, sewer and storm drainage) and roads to the borders of the parcel and the homebuilder completes the on-site utilities, roads and finished lots. Revenue is also generated through price participation with homebuilders.

We also occasionally sell or lease land for commercial development when we deem its use will not compete with our existing properties or our development strategy. Commercial sales include land parcels designated for retail, office, hospitality, high density residential projects (e.g., condominiums and apartments), services and other for-profit activities, as well as those parcels designated for use by government, schools and other not-for-profit entities.

Operating Assets. Our Operating Assets segment contains 57 assets, including our investments in joint ventures and other assets, consisting of 13 retail, 25 office, six multi-family, three hospitality properties and 10 other operating assets and investments.


Operating Assets

We have developed many of thesethe assets in our Operating Assets segment since the Company’s inception in 2010. Revenue is primarily generated through rentalAs of December 31, 2022, we have 75 Operating Assets, including our investments in unconsolidated ventures, consisting of 12 retail properties, 35 office properties, 15 multi-family properties and hospitality services and is directly impacted by trends in rental and occupancy rates and13 other operating costs. We will also occasionally sell an operating asset when it does not complement our existing properties or no longer fits withininvestments. Excluding our current strategy. projects under construction, we own approximately 8.8 million square feet of retail and office space and 5,030 multi-family units.

We believe that the long-term value of our Operating Assets liesis driven by their concentration in our premier portfolio located in geographically diverse locations.MPCs where we have a unique level of control and competitive advantage. We believe that these assets have the potential for future growth by increasing rental rates, absorbing remaining vacancy and changing the tenant mix in retail centers to improve gross sales revenue of our tenants, thereby increasing rents.

Revenue is primarily generated through rental services and is directly impacted by trends in rental rates and operating costs.


We will also occasionally sell an operating asset when it does not complement our existing properties or no longer fits within our current strategy. In 2022, the Company completed the sale of three retail properties, Outlet Collection at Riverwalk, Lake Woodlands Crossing and Creekside Village Green, as well as the Company’s interest in the 110 North Wacker office property, for total net proceeds of $215.9 million.

For certain assets, we believe there are opportunities to improve operating performance through redevelopment or repositioning. Redevelopment plans for these assets may include office, retail or residential space, shopping centers, movie theaters, parking complexes or open space. The redevelopment plans may require that we obtain permits, licenses, consents and/or waivers from various parties. These opportunities will require new capital investment and vary in complexity and scale. The redevelopment opportunities range from those that would have minimal disruption to the property to those requiring partial or full demolition of existing structures for new construction. Factors we evaluate in determining whether to redevelop or reposition an asset include the following: (1) existing and forecasted demographics surrounding the property; (2) competition related to existing and/or alternative uses; (3) existing entitlements of the property and our ability to change them; (4)

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compatibility of the physical site with proposed uses; and (5) environmental considerations, traffic patterns and access to the properties.


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We generally transfer an operating asset that is being repositioned or redeveloped into our Strategic Developments segment when we close operations at a property and/or begin construction on the redevelopment project. Upon completion of construction or renovation of a development or redevelopment, the asset is fully or partially placed in service and transferred back into our Operating Assets segment.

Strategic Developments.


Master Planned Communities

As of December 31, 2022, we own the MPCs of Summerlin in Las Vegas; The Woodlands, The Woodlands Hills and Bridgeland in the Houston region; Teravalis (formerly named Douglas Ranch) in the Phoenix region; and Columbia in Maryland. Our MPC segment includes the development and sale of residential and commercial land, primarily in large-scale, long-term projects. These developments often require decades of investment and continued focus on the changing market dynamics surrounding these communities. We believe that the long-term value of our MPCs remains strong because of their competitive positioning in their respective markets, our in-depth experience in diverse land use planning and the fact that we have substantially completed the entitlement processes within the majority of our communities.

Our MPCs have won numerous awards for design excellence and for community contribution. Summerlin and Bridgeland were again ranked by Robert Charles Lesser & Co., LLC (RCLCO), capturing ninth and twentieth highest-selling master planned communities in the nation, respectively, for the year ended December 31, 2022.

We expect the competitive position, desirable locations and land development expertise to drive the long-term growth of our MPCs. As of December 31, 2022, our MPCs, including our Floreo unconsolidated joint venture near Phoenix, Arizona, encompass approximately 118,000 gross acres of land and include approximately 37,000 acres of land available for sale or development. Residential sales, which are generated primarily from the sale of finished lots and undeveloped superpads to residential homebuilders and developers, include standard and custom parcels designated for detached and attached single-family homes, and range from entry-level to luxury homes. Superpad sites are generally 10 to 25-acre parcels of unimproved land where we develop and construct the major utilities (water, sewer and storm drainage) and roads to the borders of the parcel and the homebuilder completes the on-site utilities, roads and finished lots. Revenue is also generated through builder price participation with homebuilders.

We also occasionally sell or lease land for commercial development when we deem its use will not compete with our existing properties or our development strategy. Commercial sales include land parcels designated for retail, office, hospitality, high-density residential projects (e.g., condominiums and apartments), services and other for-profit activities, as well as those parcels designated for use by government, schools and other not-for-profit entities.

Seaport

The Seaport spans approximately 473,000 square feet and several city blocks, including Pier 17, the Tin Building, the Historic District and the 250 Water Street development. Our Seaport segment is part non-stabilized operating asset, part development project and part operating business. Due to the range of asset types discussed above, we categorize the businesses in the Seaport segment into the following groups: Landlord Operations, Managed Businesses, the Tin Building and Events and Sponsorships.

Throughout 2022, we have continued to execute on our long-term vision for the Seaport. In the first quarter of 2022, the Company paid $45 million for a 25% interest in Jean-Georges Restaurants, which currently operates over 40 restaurant and hospitality offerings around the world. The Company also paid $10 million in exchange for the option to acquire up to an additional 20% interest in Jean-Georges Restaurants. In the third quarter of 2022, the Company opened the Tin Building, which includes both landlord operations and managed business. The Company owns 100% of the Tin Building which is leased 100% to the Tin Building by Jean-Georges joint venture, a managed business in which the Company has an equity ownership interest.

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In October 2020, we announced our comprehensive proposal for the redevelopment of 250 Water Street, which includes the transformation of this underutilized full-block surface parking lot into a mixed-use development that will include affordable and market-rate apartments, community-oriented spaces and office space. This project, which includes approximately 547,000 zoning square feet, presents a unique opportunity at the Seaport to redevelop this site into a vibrant mixed-use asset, provide long-term viability to the South Street Seaport Museum and deliver much-needed affordable housing and economic stimulus to the area. In May 2021, we received approval from the New York City Landmarks Preservation Commission (LPC) on our proposed design for the 250 Water Street site. HHC received final approvals in December 2021 through the New York City Uniform Land Use Review Procedure known as ULURP, which will allow the necessary transfer of development rights to the parking lot site. Also in December 2021, an amendment to the Seaport ground lease was executed giving HHC extension options, at the discretion of HHC, for an additional 48 years from its current expiration in 2072 until 2120. We received a building foundation permit from the New York City Department of Buildings and began initial foundation work and remediation in the second quarter of 2022. Remediation of the site as a volunteer of the New York State Brownfield Cleanup program is expected to be completed in 2023. Various lawsuits have been filed challenging the LPC’s approval of our development project. For additional information regarding these lawsuits, see Note 10 - Commitments and Contingencies in the Notes to Consolidated Financial Statements under Item 8 of this Form 10-K.

Total estimated aggregate project costs remaining to be spent and funded by HHC as of December 31, 2022, for the Seaport projects currently under construction, excluding the 250 Water Street development, are $38.9 million.

Strategic Developments

Our Strategic Developments segment consists of 2814 development or redevelopment projects, mostincluding developments within our MPCs that will transition to Operating Assets upon completion and condominium towers at Ward Village. Many of whichthese developments require extensive planning and expertise in large-scale and long-range development to maximize their highest and best uses. The strategic process is complex and unique to each asset and requires on-goingongoing assessment of the changing market dynamics prior to the commencement of construction. We must study each local market, determine the highest and best use of the land and necessary improvements to the area, obtain entitlements and permits, complete architectural design and construction drawings, secure tenant commitments and obtain and commit sources of capital.


We are in various stages of predevelopment or execution of our strategic plans for many of these assets based on market conditions. As of December 31, 2017,2022, we had 13six properties under construction and not yet placed into service. Excluding our two projects in joint ventures, totalWe generally obtain construction financing to fund a significant amount of the costs associated with developing these assets. Total estimated aggregate project costs remaining to be spent on our 11 consolidated properties under construction as of December 31, 2017, are $934.3 million,2022, were $1.1 billion, of which $468.0$126.0 million remains towill be funded by usHHC and the remaining amounts tocost will be funded with existing debt. We generally obtain construction financing to fund a majority of the costs associated with developing these assets. Furthermore, we are always undergoing processes to obtain the required permits for our large scale real estate developments.


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The chart below presents our assets classified by reportable segment, predominant use and geographic location at December 31, 2017:

Geographic

Master Planned

Strategic 

Region

Communities

Operating Assets

Developments

Houston

Retail

Office

Under Construction

• Bridgeland

▪ Creekside Village Green

▪ One Hughes Landing

▪ 100 Fellowship Drive

• The Woodlands

▪ Hughes Landing Retail

▪ Two Hughes Landing

▪ Creekside Park Apartments

• The Woodlands Hills

▪ 1701 Lake Robbins

▪ Three Hughes Landing (b)

▪ Lake Woodlands Crossing Retail

▪ 20/25 Waterway Avenue

▪ 1725-35 Hughes Landing Boulevard

▪ Waterway Garage Retail

▪ 2201 Lake Woodlands Drive

Other

▪ 2000 Woodlands Parkway

▪ 9303 New Trails

▪ Bridgeland Apartments

▪ Lakeland Village Center at Bridgeland (b)

▪ 3831 Technology Forest Drive

▪ 3 Waterway Square

Multi-family

▪ 4 Waterway Square

▪ Millennium Waterway Apartments

▪ 1400 Woodloch Forest

▪ Millennium Six Pines Apartments (a)

▪ One Lakes Edge

Other

▪ HHC 242 Self-Storage (c)

Hospitality

▪ HHC 2978 Self-Storage (c)

▪ Embassy Suites at Hughes Landing

▪ Stewart Title of Montgomery

▪ The Westin at The Woodlands (b)

  County, TX (d)

▪ The Woodlands Resort &

▪ The Woodlands Parking Garages

  Conference Center

▪ Woodlands Sarofim #1 (d)

▪ Woodlands Ground Lease

Las Vegas

• Summerlin

Retail

Office

Under Construction

▪ Downtown Summerlin

▪ ONE Summerlin

▪ Two Summerlin

▪ Aristocrat

Other

Other

Multi-family

▪ Las Vegas 51s (a)

Other

• The Summit (d)

▪ Constellation (a)

▪ Summerlin Hospital Medical

▪ Las Vegas Ballpark

 Center (d)

▪ Downtown Summerlin Apartments

▪ Hockey Ground Lease

▪ 80% Interest in Fashion

  Show Air Rights

Columbia

• Maryland Communities

Retail

Office

Under Construction

▪ Columbia Regional Building

▪ 10-70 Columbia Corporate Center

▪ m.flats/TEN.M (d)

▪ Columbia Office Properties

Multi-family

▪ One Mall North

Other

▪ The Metropolitan Downtown

▪ One Merriweather (c)

▪ American City Building

  Columbia (d)

▪ Two Merriweather (c)

▪ Three Merriweather

New York

Retail

Under Construction

▪ Seaport District NYC - Historic Area/Uplands

▪ 33 Peck Slip (d) (f)

▪ Seaport District NYC - Pier 17 (g)

Multi-family

▪ Seaport District NYC - Tin Building (g)

▪ 85 South Street

Honolulu

Retail

Other

Under Construction

▪ Ward Village Retail (e)

▪ Kewalo Basin Harbor

▪ Ae`o

▪ Anaha (h)

▪ Ke Kilohana

▪ Waiea (h)

Other

▪ Maui Ranch Land

Other

Retail

Office

Other

▪ Outlet Collection at Riverwalk

▪ 110 North Wacker

▪ AllenTowne

▪ Bridges at Mint Hill

▪ Circle T Ranch and Power Center (d)

▪ Cottonwood Mall

▪ The Elk Grove Collection (i)

▪ Landmark Mall (f)

▪ Ridgely Building (j)

▪ West Windsor

(a)

Asset was held as a joint venture until our acquisition

BUSINESS
Table of our partner’s interest.

Contents
Index to Financial Statements

(b)

ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG)

Our expansive portfolio and tremendous scale give HHC a unique opportunity to build next-generation communities and make a meaningful, positive impact on people’s lives at a local, regional and national level. We are acutely aware of the responsibility that comes along with that opportunity. Building on our reputation for excellence and innovation, we remain focused on making our developments sustainable; giving back to our communities; protecting our landscapes; supporting inclusivity; and establishing communities that create value and well-being for generations to come.

Acknowledging the power of our scale, as well as the opportunities for taking climate action, we are amplifying and accelerating our efforts to further advance resiliency, conservation, innovation, and inclusion throughout our large-scale, mixed-use communities. We have aligned our community strategies to support the United Nations Sustainable Development Goals (UN SDGs), defined by the UN as the blueprint for achieving a better and more sustainable future for all—a framework that helps us view our people-centric approach to development and management through the global lens of our planet’s most pressing issues.

Our program is overseen by our CEO, President and Board of Directors. Additional details on our sustainable, inclusive and transparent approach are available in our latest ESG annual report now called the HHCommunities Report, which can be found on the Company’s website (https://www.howardhughes.com/our-company/esg). This annual report looks back at the collective efforts of the Howard Hughes team in 2021. It reflects each business segment and region across our national portfolio of Master Planned Communities (MPCs), Strategic Developments, Operating Assets and the Seaport. Our disclosure is in accordance with the Global Reporting Initiative’s (GRI) 2020 Standards. Prior to this report, the most recent report was published in November 2021 and covered calendar year 2020.

Asset was placed in service

Environmental Strategy and moved from the Strategic Developments segmentPerformance

Our guiding principle that drives the development of our award-winning master planned communities is, ‘How you live, how we build’. Each community manages and addresses its unique context through resilient planning, green building design, high operational performance and ongoing risk management. We continue to monitor and refine our approach as developments transition into operating assets in order to ensure continued support for the responsible use of resources, conservation and efficiency measures. From an operational standpoint, we measure energy, water, emissions and waste performance and proactively pursue efforts to reduce our impact across our portfolio. These efforts align with UN Sustainable Development Goals 6, 7, 12, 13 and 15, all of which focus on climate health and responsible resource stewardship. We complement this holistic approach with programs and actions customized for the age, asset type and regional considerations of our diverse properties. Data-driven analysis, engineering insights and occupant feedback drive unique strategies for each of our buildings.

In 2017, we set 10-year environmentally focused goals for energy use reduction, water use reduction, waste reduction and diversion and carbon emission reduction. We report our progress against the goals annually in our HHCommunities report and leverage industry leadership programs to benchmark environmental performance. Our sustainability report highlighted our management of climate-related risks and opportunities in line with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. Annually we work with DNV Business Assurance USA, Inc. to externally confirm our energy consumption, water consumption, greenhouse gas emissions and waste data. Leadership in Energy and Environmental Design (LEED), U.S. Environmental Protection Agency’s (EPA) ENERGY STAR and BOMA 360 certifications validate our use of sustainable design, construction and operations principles that result in reduced resource usage, decreased emissions and better well-being for building occupants. We achieved 16 ENERGY STAR certifications, 10 BOMA 360 certifications, 1 LEED certification, 2 LEED precertifications and 10 LEED registered projects, raising our total count to 82 active and pending certifications. The Woodlands, established in 1974, is the largest MPC in the world to receive LEED precertification; the recognition demonstrates HHC’s alignment with sustainability principles for nearly five decades.

In 2022, HHC was recognized by Global Real Estate Sustainability Benchmark (GRESB) for its sustainability leadership, earning the top ranking in the U.S. Diversified Listed peer group for the 2022 GRESB Real Estate Assessment’s Standing Investments Benchmark. The Company was also recognized as Sector Leader in the Americas Diversified category for its sustainability performance and best practices within the real estate industry. HHC’s first-place peer group ranking was determined by its strong portfolio-wide performance across topics of sustainability, inclusion and transparency. Two key scoring components of the Real Estate Assessment include management and performance. The management component measures an entity’s overall strategy and leadership, approach to stakeholder engagement, and policies and processes. The performance component measures an entity’s environmental and social performance.

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Index to the Operating Assets segment during 2016.

Financial Statements

(c)

Social Strategy and Impact

Human Capital We build vibrant, diverse, and culturally rich communities that deliver an exceptional quality of life for generations to come. Our dedicated and talented team continues the work of the forward-thinking placemakers—James Rouse, George Mitchell, Victoria Ward and Howard Hughes—whose collective legacy of innovation, imagination, and excellence form the basis of our company. As of December 31, 2022, we had approximately 565 employees supporting our core business, with an additional 175 employed at the Las Vegas Ballpark, including seasonal staff required to support ongoing ballpark events and merchandising operations.

The continuous development of our employees—at work, and at home—is intrinsically linked to our Company’s ever-evolving creation and stewardship of inclusive, sustainable community living. We encourage continued learning through tuition reimbursement, student debt management resources, and a fund for non-job-related training. To support our employees’ personal well-being, we offer competitive programs for our employees and their families at all stages of life, including a robust health benefits plan, 401k match plan, up to 12 weeks of fully paid leave for parents welcoming new children, financial support of adoption, donation, and surrogacy services, and bicycle reimbursement.

In 2022, HHC continued to build upon our Diversity, Equity, and Inclusion (DEI) strategies to elevate our overall goals and experiences for our employees and communities. We strive for diversification and retention of talent that ultimately drives top performance, diverse thought, inclusive culture, and leadership development. We invest in processes that help to activate equitable access for employee growth, both personally and professionally. We provide opportunities for all to develop a sense of belonging, fair representation, and engagement through initiatives such as trainings, strategic talent acquisition partnerships, Employee Resource Groups, and annual DEI goals. As of December 31, 2022, our workforce was 52% female and 35% ethnically diverse. Employees at a Vice President level or above were 31% female and 19% ethnically diverse. Through multiple initiatives, we continue to find opportunities to increase the diversity of our teams.

In addition to our focus on our employees, we are highly attuned to how we impact the lives of those within our communities, and we support over 350 causes of local charities through monetary donations and volunteerism within our HHCares program. In 2022, the Company donated over $3.9 million nationwide, and matched more than $80,000 of individual employee donations to registered 501c3 non-profit organizations. Our employees also donated upwards of 1,300 hours of volunteer time throughout 2022.

At Howard Hughes, we recognize that our people are the lifeblood of all we do, and we are committed to supporting them in all aspects of life. We believe better people make better companies, and better companies build better communities.

Asset was placed in service

Governance and moved from the Strategic Developments segmentRisk Management

In order to identify, monitor, and mitigate potential risks that could impact our organization and investors, The Howard Hughes Corporation has made governance and risk management a top Board priority. As part of our corporate governance framework, we have a formal Enterprise Risk Management (ERM) Program that is overseen by the Board’s Risk Committee and led by our Risk Management team. The Risk Committee helps to evaluate the effectiveness of the ERM Program and the performance of the Risk Management team. It also reviews and monitors risks that have been identified and are considered critical by management, such as capital, market, liquidity, legal, regulatory, operational, reputational and strategic risks. The Risk Committee reviews and approves periodic risk assessment results and reviews risk mitigation activities deemed material by management. The Risk Committee also reviews risk mitigation activities for emerging risks and oversees management’s approach to fostering a risk-intelligent culture.

HHC’s program is shaped and supported by the Board and encompasses a range of corporate governance policies and guidelines that include but are not limited to: Anti-Corruption Compliance Policy, Board Diversity Policy, Cybersecurity Policy, Code of Business Conduct and Ethics for Officers and Employees, Code of Business Conduct and Ethics for the Board of Directors, Corporate Governance Guidelines, and Insider Trading Policy. These policies and our Human Rights Policy are published on the Company’s website (https://investor.howardhughes.com/documents).


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Index to the Operating Assets segment during 2017.

Financial Statements

(d)

A non-consolidated investment. Refer to Note 5 – Real Estate and Other Affiliates in our Consolidated Financial Statements.

REGULATORY MATTERS

(e)

Includes retail within the recently opened Waiea and Anaha condominium towers.


(f)

Asset is in redevelopment and moved from the Operating Assets segment to the Strategic Developments segment during 2017.

(g)

Effective January 1, 2017, we moved the Seaport District NYC assets under construction and related activities to the Strategic Developments segment from the Operating Assets segment. Seaport District NYC operating properties currently in service and related operating results remain presented within the Operating Assets segment.

(h)

Waiea and Anaha are open and occupied by tenants with sales of remaining units ongoing.

(i)

Formerly known as The Outlet Collection at Elk Grove.

(j)

Asset was previously included in Columbia Office Properties.

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Competition

The nature and extentA portion of our competitionbusiness is dedicated to the development and sale of condominiums. Condominiums are generally regulated by an agency of the state in which they are located or where the condominiums are marketed to be sold. In connection with our development and offering of condominium units for sale, we must submit regulatory filings to various state agencies and engage in an entitlement process by which real property owned under one title is converted into individual units. Responses or comments on our condominium filings may delay our ability to sell condominiums in certain states and other jurisdictions in a timely manner, or at all. In addition, approval to develop real property sometimes requires political support and generally entails an extensive entitlement process involving multiple and overlapping regulatory jurisdictions and often requires discretionary action by local governments. Real estate projects must generally comply with local land development regulations and may need to comply with state and federal regulations. We incur substantial costs to comply with legal and regulatory requirements.


Various local, state and federal statutes, ordinances, rules and regulations concerning building, health and safety, site and building design, environment, zoning, sales and similar matters apply to and/or affect the real estate development industry. Our ability to obtain or renew permits or approvals and the continued effectiveness of permits already granted or approvals already obtained depends on factors beyond our control, such as changes in federal, state and local policies, rules and regulations and their interpretations and application.

There is a variety of legislation being enacted, or considered for enactment, at the typefederal, state and local levels relating to energy and climate change. This legislation relates to items such as carbon dioxide emissions control and building codes that impose energy efficiency standards. New building code requirements that impose stricter energy efficiency standards could significantly increase our cost to construct buildings. As climate change concerns continue to grow, legislation and regulations of property involved. With respectthis nature are expected to continue and become more costly to comply with. We may be required to apply for additional approvals or modify our existing approvals because of changes in local circumstances or applicable law. Energy-related initiatives affect a wide variety of companies throughout the United States and the world and, because our operations are heavily dependent on significant amounts of raw materials, such as lumber, steel and concrete, they could have an indirect adverse impact on our operations and profitability to the extent the manufacturers and suppliers of our materials are burdened with expensive cap and trade and similar energy-related taxes and regulations. Governmental regulation also affects sales activities, mortgage lending activities and other dealings with consumers. Further, government agencies routinely initiate audits, reviews or investigations of our business practices to ensure compliance with applicable laws and regulations, which can cause us to incur costs or create other disruptions in our business that can be significant. We may experience delays and increased expenses as a result of legal challenges to our MPC segment, we compete with other landholders and residential and commercial property developers primarily in the development of properties within Las Vegas, Nevada; the greater Houston, Texas area; and the Baltimore, Maryland/Washington, D.C. markets. Significant factors which we believe allow us to compete effectively in this business include:

·

the size and scope of our MPCs;

proposed communities, whether brought by governmental authorities or private parties.

·

years of experience serving and strong reputation within the industry;


·

the recreational and cultural amenities available within our communities;

·

the commercial centers in the communities, including the properties that we own and/or operate or may develop;

·

our relationships with homebuilders;

·

our level of debt relative to total assets; and

·

the proximity of our developments to major metropolitan areas.

With respect to our Operating Assets segment, we primarily compete for retail and office tenants, residential tenants and hospitality guests. We believe the principal factors that retailers consider in making their leasing decisions include: (1) consumer demographics; (2) age, quality, design and location of properties; (3) neighboring real estate projects that have been developed or that we, or others, may develop in the future; (4) diversity of retailers and anchor tenants at shopping center locations; (5) management and operational expertise; and (6) rental rates. The principal factors influencing tenant leasing decisions for our office space include: (1) rental rates; (2) attractive views; (3) walkable retail; (4) commute time; (5) efficiency of space; and (6) demographics of available workforce.For residential tenants, we believe the factors that impact their decision where to live are: (1) walkability/proximity to work; (2) amenities; and (3) the best value for their money. Our hospitality guests generally make decisions on which hotel they prefer based on: (1) the nature and intention of their trip; (2) brand loyalty; or (3) location and convenience to either an urban or open resort experience.

With respect to our Strategic Developments segment, our direct competitors include other commercial property developers, residential condominium developers and other owners of commercial real estate that engage in similar businesses. With significant existing entitlements, we hold an advantage over many of our competitors in our markets in that we already own and control, or have significant influence over, substantial acreage for development. We also own the majority of square feet of each product type in many of our markets.

Environmental Matters

Under various federal, state and local laws and regulations, an owner of real estate is liable for the costs of removal or remediation of certain hazardous orsubstances, including petroleum and certain toxic substances (collectively hazardous substances) on such real estate. These laws often impose such liability without regard to whether the owner knew of, or was responsible for, the presence of such hazardous or toxic substances. The costs of remediation or removal of such substances may be substantial, and the presence of such substances, or the failure to promptly remediate such substances, may adversely affect the owner’s ability to sell such real estate or to obtain financing using such real estate as collateral.

Substantially all Other federal, state and local laws, ordinances and regulations require abatement or removal of asbestos-containing materials in the event of demolition or certain renovations or remodeling, the cost of which may be substantial for certain redevelopments, and also govern emissions of and exposure to asbestos fibers in the air. Federal and state laws also regulate the operation and removal of underground storage tanks. In connection with our ownership, operation and management of certain properties, have been subjectwe could be held liable for the costs of remedial action with respect to third-party Phase I environmental assessments, which are intendedthese regulated substances or tanks or related claims.


Additionally, changes to evaluate the environmental conditionour procedures or additional procedures, implemented to comply with public health orders or best practice guidelines as a result of the surveyedongoing COVID-19 pandemic, may increase our costs or reduce our productivity and surrounding properties. As of December 31, 2017, the assessments have not revealed any known environmental liability that we believe would have a material adverse effect onthereby affect our overall business, financial positioncondition or results of operations. Nevertheless, it is possible that these assessments do not reveal all environmental liabilities or that the conditions have changed since the assessments were prepared (typically at the time the property was purchased or encumbered with debt). Moreover, no assurances can be given that future laws, ordinances or regulations will not impose any material environmental liability on us, or the current environmental condition of our properties will not be adversely affected by tenants

For further information see Governance and occupants of the properties, by the condition of properties in the vicinity of our properties (such as the presence on such properties of underground storage tanks) or by third parties unrelated to us.

Future development opportunities may require additional capital and other expenditures to comply with federal, state and local statutes and regulations relating to the protection of the environment. In addition, there is a risk when redeveloping sites, that we might encounter previously unknown issues that require remediation or residual contamination warranting special handling or disposal, which could affect the speed of redevelopment. Where redevelopment involves renovating or demolishing existing facilities, we may be required to undertake abatement and/or the removal and disposal of building materials or other remediation or cleanup activities that contain hazardous materials. We cannot predict with any certainty the magnitude of any such

Risk Management above.


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expenditures or the long-range effect, if any, on our operations. Compliance with such laws has not had a material adverse effect on our current or past operating results or competitive position, but could have such an effect on our operating results or competitive position in the future.

Employees

As of December 31, 2017, we had approximately 1,100 employees, approximately 500 of whom were employed at our hospitality properties.

Available Information

Our website address is www.howardhughes.com. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other publicly filed documents are available and may be accessed free of charge through the “Investors” section of our website under the SEC Filings subsection, as soon as reasonably practicable after those documents are filed with, or furnished to, the SEC. Also available through our Investors section of our website are reports filed by our directors and executive officers on Forms 3, 4 and 5, and amendments to those reports. Our website and included or linked information on the website are not incorporated into this Annual Report on Form 10-K.

ITEM
RISK FACTORS
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Index to Financial Statements

Item 1A. RISK FACTORS 

Risk Factors


The risks and uncertainties described below are those that we deem currently to be material, and do not represent all of the risks that we face. Additional risks and uncertainties not presently known to us or that we currently do not consider material may in the future become material and impair our business operations. If any of the following risks actually occur, our business could be materially harmed, and our financial condition and results of operations could be materially and adversely affected. Our business, prospects, financial condition or results of operations could be materially and adversely affected by the following:

Risks Related


RISKS RELATED TO OUR INDUSTRY, MARKET AND CUSTOMERS

Our performance and the market value of our securities are subject to risks associated with our Business

investments in real estate assets and with trends in the real estate industry.


Our economic performance and the value of our real estate assets and, consequently the market value of the Company’s securities, are subject to the risk that our properties may not generate revenues sufficient to meet our operating expenses or other obligations. A deficiency of this nature would adversely impact our financial condition, results of operations, cash flows, the quoted trading price of our securities and our ability to satisfy our debt service obligations.

A downturn in the housing market or decline in general economic conditions could adversely affect our business, financial condition and operations.


We believe that new home sales are an important indicator of future demand for our superpad sites, lots and condominium units. Demand for new homes is sensitive to changes in economic conditions such as the level of employment, consumer confidence, consumer income, the availability of financing and interest rate levels. The prior economic downturn severely affected both the numbersnumber of homes that could be sold in our MPCs and the prices for which homebuilders could sell them. We cannot predict when another economic downturn in the housing market will occur. If there were another economic downturn in the housing market or in general economic conditions, the resulting decline in demand for new homes and condominium units would likely have a material adverse effect on our business, financial condition and results of operations.

Our MPC segment is highly dependent on homebuilders.

We are highly dependent on our relationships with homebuilders to purchase lots at our master planned communities. Our business will be adversely affected if homebuilders do not view our master planned communities as desirable locations for homebuilding operations or due to a change in demand, our inability to achieve certain pricing arrangements or upon an overall decline in general market conditions. Also, some homebuilders may be unwilling or unable to close on previously committed lot purchases due to our failure to meet certain conditions in our agreements or otherwise. As a result, we may sell fewer lots and, in certain instances suspend any of our MPC developments and may have lower sales revenues, which could have an adverse effect on our financial position and results of operations.

Our development, construction and sale of condominiums are subject to state regulations and may be subject to claims from the condominium owners association at each project.

A portion of our business is dedicated to the development and sale of condominiums. Condominiums are generally regulated by an agency of the state in which they are located or where the condominiums are marketed to be sold. In connection with our development and offering of condominium units for sale, we must submit regulatory filings to various state agencies and engage in an entitlement process by which real property owned under one title is converted into individual units. Responses or comments on our condominium filings may delay our ability to sell condominiums in certain states and other jurisdictions in a

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timely manner, or at all. Further, we will be required to transfer control of a condominium association’s board of directors once we trigger one of several statutory thresholds, with the most likely triggers being tied to the sale of not less than a majority of units to third-party owners. Transfer of control can result in claims with respect to deficiencies in operating funds and reserves, construction defects and other condominium-related matters by the condominium association and/or third-party condominium unit owners. Any material claims in these areas could negatively affect our reputation in condominium development and ultimately have a material adverse effect on our business, financial condition and results of operations.

Our condominium sales are sensitive to interest rates and the ability of consumers to obtain mortgage financing.


Interest rates have increased substantially over the last year and may continue to increase. As a result, mortgage rates more than doubled in fiscal year 2022. The ability of the ultimate buyers of condominiums to finance their purchases is generally dependent on their personal savings and availability of third-party financing. Consequently, the demand for condominiums will be adversely affected by increases in interest rates, unavailability of mortgage financing, increasing housing costs and unemployment levels. Levels of income and savings, including retirement savings, available to condominium purchasers can be affected by declines in the capital markets. Any significant increase in the prevailing low mortgage interest rate environmentrates or decrease in available credit could reduce consumer demand for housing, and result in fewer condominium sales, which may have an adverse effect on our business, financial condition and results of operations.

We cannot predict whether interest rates will continue to rise, or the paces of the increases, but further increases would likely have a considerable impact on condominium demand.


Purchasers may default on their obligations to purchase condominiums.


We enter into contracts for the sale of condominium units that generally provide for the payment of a substantial portion of the sales price at closing when a condominium unit is ready to be delivered and occupied. A significant amount of time may pass between the execution of a contract for the purchase of a condominium unit and the closing thereof. The rate of defaults may increase from historical levels due to the personal finances of purchasers being negatively impacted as a result of higher interest rates or COVID-19. Defaults by purchasers to pay any remaining portions of the sales prices for condominium units under contract may have an adverse effect on our business, financial condition and results of operations.


Downturn in tenants’ businesses may reduce our revenues and cash flows.

An office or retail tenant may experience a downturn in its business, due to a variety of factors including rising inflation or supply chain issues, which may weaken its financial condition and result in its failure to make timely rental payments or result in defaults under our leases. The rate of defaults may increase from historical levels due to tenants’ businesses
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being negatively impacted by higher interest rates or the COVID-19 pandemic. In the event of default by a tenant, we may experience delays in enforcing our rights as the landlord and may incur substantial costs in protecting our investment.

We maybenegatively impacted by the consolidation or closing of anchor stores.


Many of our mixed-used properties are anchored by “big box” tenants. We could be adversely affected if these or other anchor stores were to consolidate, close or enter into bankruptcy. Given the current economic environment for certain retailers, there is a heightened risk an anchor store could close or enter into bankruptcy. Any losses resulting from the bankruptcy of any of our existing tenants could adversely impact our financial condition. Even if we own the anchor space, we may be unable to re-lease this area or to re-lease it on comparable terms. The loss of these revenues could adversely affect our results of operations and cash flows. Further, the temporary or permanent loss of any anchor would likely reduce customer traffic in the retail center, which could lead to decreased sales at other retail stores. Rents obtained from other tenants may be adversely impacted as a result of co-tenancy clauses in their leases. One or more of these factors could cause the retail center to fail to meet its debt service requirements. The consolidation of anchor stores may also negatively affect lease negotiations and current and future development projects.


We may havebe unable to make significant capital expendituresrenew leases or re-lease available space.

We cannot provide any assurance that existing leases will be renewed, available space will be re-leased or that our rental rates will be equal to maintainor above the current rental rates. For example, delays in payments and the rate of defaults on existing leases increased from historical levels during the COVID-19 pandemic due to tenants’ businesses being negatively impacted as a result of COVID-19. If the average rental rates for our hotel properties and any hotel redevelopmentdecrease, existing tenants do not renew their leases, or development activities we undertake may be more costly than we anticipate.

From time to time,available space is not re-leased, our hotels will have a need for renovations and other capital improvements, including replacementsfinancial condition, results of furniture, fixtures and equipment. Managers or franchisorsoperations, cash flows, the quoted trading price of our hotels also require periodic capital improvements pursuantsecurities and our ability to management agreements we enter into with them or as a condition of maintaining franchise licenses. Generally, we are responsible forsatisfy our debt service obligations at the cost of these capital improvements. As part of our long-term growth strategy, we may also develop hotelaffected properties timeshare units or other alternate uses of portions of our existing properties, including the development of retail, office or apartments, including through joint ventures. Such renovation and development involves substantial risks, including, but not limited to:

·

construction cost overruns and delays;

could be adversely affected.

·

the disruption of operations and displacement of revenue at operating hotels, including revenue lost while rooms, restaurants or meeting space under renovation are out of service;


·

the cost of funding renovations or developments and inability to obtain financing on attractive terms;

·

the return on our investment in these capital improvements or developments failing to meet expectations;

·

governmental restrictions on the nature or size of a project or the inability to obtain all necessary zoning, land use, building, occupancy, and construction permits; and

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·

disputes with franchisors or property managers regarding compliance with relevant franchise agreements or management agreements.

The occurrence of any of the aforementioned risks or any others not currently known to usSignificant competition could negatively impact certain hotel properties and result in a materialhave an adverse effect on our business.


The nature and extent of the competition we face depend on the type of property. With respect to our MPCs, we compete with other landholders and residential and commercial property developers in the development of properties in the respective MPC regions. Numerous residential and commercial developers, some with greater financial condition and other resources, compete with us in seeking resources for development and prospective purchasers and tenants. Competition from other real estate developers may adversely affect our ability to attract purchasers and sell residential and commercial real estate, sell undeveloped rural land, attract and retain experienced real estate development personnel, or obtain construction materials and labor. These competitive conditions can make it difficult to sell land at desirable prices and can adversely affect our results of operations.

operations and financial condition.


There are numerous shopping facilities that compete with our operating retail properties in attracting retailers to lease space. In addition, retailers at these properties face continued competition from other retailers, including internet retailers, retailers at other regional shopping centers, outlet malls and other discount shopping centers, discount shopping clubs, and catalog companies. Competition of this type could adversely affect our results of operations and financial condition. In addition, we compete with other major real estate investors with significant capital for attractive investment and development opportunities. These competitors include REITs and private institutional investors.

The concentration of our properties in certain states may make our revenues and the value of our assets vulnerable to adverse changes in local economic conditions.


Many of the properties we own are located in the same or a limited number of geographic regions, including Texas, Hawaii, Las Vegas,Hawai‘i, Nevada, New York and Maryland. In October 2021, we announced the launch of Teravalis, a new large-scale master planned community in the West Valley of Phoenix, Arizona. Our current and future operations at the properties in these states are generally subject to significant fluctuations by various factors that are beyond our control such as the regional and local economy, which may be negatively impacted by material relocation by residents, industry slowdowns, plant closings, increased unemployment, lack of availability of consumer credit, levels of consumer debt, housing market conditions, adverse weather conditions, natural disasters, climate change and other factors, as well as the local real estate conditions, such as an oversupply of, or a reduction in demand for, retail space or retail goods hotel rooms and the availability and creditworthiness of current and prospective tenants.


In addition, some of our properties are subject to various other factors specific to those geographic areas. For example, tourism is a major component of both the local economies in HawaiiHawai‘i and Nevada. Ward Village, which is located in Honolulu, Hawaii,Hawai‘i, and Summerlin, which is located in Las Vegas, Nevada, may be impacted by the local and global tourism industry. These properties are susceptible to any factors that affect travel and tourism related to HawaiiHawai‘i and Las
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Vegas, including cost and availability of air services and the impact of any events that disrupt air travel to and from these regions. Moreover, these properties may be affected by risks such as acts of terrorism and natural disasters, including major fires, floods and earthquakes, as well as severe or inclement weather, which could also decrease tourism activity in Las Vegas or Hawaii.

Hawai‘i.


Further, Summerlin is to some degree dependent on the gaming industry, which could be adversely affected by changes in consumer trends and preferences and other factors over which we have no control. TheThe gaming industry is characterized by an increasingly high degree of competition among a large number of participants, including riverboat casinos, dockside casinos, land-based casinos, video lottery, sweepstakes and poker machines, many of which are located outside of Las Vegas. Furthermore, competition from internet lotteries, sweepstakes and other internet wageringinternet-wagering gaming services, which allow their customers to wager on a wide variety of sporting events and play Las Vegas-style casino games from home or in non-casino settings, could negatively impact the population in the Las Vegas area. Expansion of internet gaming in other jurisdictions (both legal and illegal) could further compete with the gaming industry in Las Vegas, which could have a negative impact on the local Las Vegas economy and result in an adverse effect on Summerlin and Downtown Summerlin.


Markets and the local economy surrounding our properties in Columbia, Maryland are heavily influenced by government spending and activity. A reduction of government spending in this market generally could decrease the demand for housing and retail space in this geographic region.


The Woodlands, The Woodlands Hills and Bridgeland in the Houston, Texas region depend significantly on the energy sector. Our success depends to a large extent upon the business activity, population, income levels, employment trends and real estate activity in and around Houston, Texas. In the event that oil prices fall and remain depressed for a sustained period, as they recently have, demand may decrease for housing and commercial space in The Woodlands, Bridgeland and The Woodlands HillsHills.

Additionally, the success of Summerlin, our master planned community in Las Vegas, Nevada, and hotel rooms atTeravalis, our hospitality propertiesnew master planned community in The Woodlands. 

the Phoenix, Arizona region, may be negatively impacted by changes in temperature due to climate change, increased stress on water supplies caused by climate change and population growth and other factors over which we have no control.


Finally, we are subject to local government responses to the COVID-19 pandemic in each of these areas which may be stricter than federal mandates, and disproportionately affect our business given the aforementioned concentration of our properties.

If any or all of the factors discussed above were to occur and result in our inability to sell or lease our residential and commercial property or book an adequate amount of hotel room stays at our hospitality properties, in any of these geographic regions, it would likely have a material adverse effect on our business, financial condition and results of operations.


Our business model includes entering into joint venture arrangements with strategic partners, and our strategic partners may have different interests than us.

We currently have and intend to enter into joint venture partnerships. These joint venture partners may bring local market knowledge and relationships, development experience, industry expertise, financial resources, financing capabilities, brand recognition and credibility or other competitive advantages. In the future, we may not have sufficient resources, experience and/or skills to locate desirable partners. We also may not be able to attract partners who want to conduct business in the locations where our properties are located, and who have the assets, reputation or other characteristics that would optimize our development opportunities.

While we generally participate in making decisions for our jointly owned properties and assets, we might not always have the same objectives as the partner in relation to a particular asset, and we might not be able to formally resolve any issues that arise. In addition, actions by a partner may subject property owned by the joint venture to liabilities greater than those contemplated by the joint venture agreements, be contrary to our instructions or requests or result in adverse consequences. We cannot control the ultimate outcome of any decision made, which may be detrimental to our interests.

The bankruptcy or, to a lesser extent, financial distress of any of our joint venture partners could materially and adversely affect the relevant property or properties. If this occurred, we would be precluded from taking some actions affecting the estate of the other investor without prior court approval which would, in most cases, entail prior notice to other parties and a hearing. At a minimum, the requirement to obtain court approval may delay the actions we would or might want to take. If the relevant joint venture through which we have invested in a property has incurred recourse obligations, the discharge in bankruptcy of one of the other partners might result in our ultimate liability for a greater portion of those obligations than would otherwise be required.

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Because real estate is illiquid, we may not be able to sell properties when in our best interest.

Real estate investments generally, and in particular large office and mixed-use properties like those that we develop and construct, often cannot be sold quickly. The capitalization rates at which properties may be sold could be higher than historic rates, thereby reducing our potential proceeds from the sale. Consequently, we may not be able to alter our portfolio promptly in response to changes in economic or other conditions. All of these factors reduce our ability to respond to changes in the performance of our investments and could adversely affect our business, financial condition and results of operations.

Some of our properties are subject to potential natural or other disasters.

A number of our properties are located in areas which are subject to natural or other disasters, including hurricanes, floods, earthquakes and oil spills. We cannot predict the extent of damage that may result from such adverse weather events, which depend on a variety of factors beyond our control. Some of our properties, including Houston-area MPCs, Ward Village and the Seaport are located in coastal regions, and could be affected by increases in sea levels, the frequency or severity of hurricanes and tropical storms, or environmental disasters, whether such events are caused by global climate changes or other factors. Additionally, adverse weather events can cause widespread property damage and significantly depress the local economies in which the Company operates and have an adverse impact on the Company’s business, financial condition and operations.

RISKS RELATED TO OUR BUSINESS OPERATIONS AND INFRASTRUCTURE

Our MPC segment is highly dependent on homebuilders.

We are highly dependent on our relationships with homebuilders to purchase superpad sites and lots at our MPCs. Our business will be adversely affected if homebuilders do not view our MPCs as desirable locations for homebuilding operations or due to a change in demand, our inability to achieve certain pricing arrangements or upon an overall decline in general market conditions. Also, some homebuilders may be unwilling or unable to close on previously committed lot purchases due to our failure to meet certain conditions in our agreements or otherwise. As a result, we may sell fewer lots and, in certain instances suspend any of our MPC developments. This would result in lower land sales revenues, which could have an adverse effect on our financial position and results of operations.

The Seaport’s operational results are volatile, which could have an adverse effect on our financial position and results of operations.

The Seaport’s operational results are volatile. The increased volatility is largely the result of:
(i) seasonality; (ii) potential sponsorship revenue; (iii) potential event revenue; and (iv) business operating risks from various start-up businesses. We own, either wholly or through joint ventures, and in some instances operate, several start-up businesses in the Seaport. As a result, the revenues and expenses of these businesses directly impact the net operating income of the Seaport, which could have an adverse effect on our financial position and results of operations. This is in contrast to our other retail properties where we generally receive lease payments from unaffiliated tenants and are not necessarily impacted by the operating performance of their underlying businesses.

We are exposed to risks associated with the development, redevelopment or construction of our properties.


Our development, redevelopment and construction activities expose us to risks such as:

–inability to obtain construction financing for the development or redevelopment of properties
–increased construction costs for a project that exceeded our original estimates due to increases in materials, labor or other costs, which could make completion of the project less profitable because market rents or condominium prices may not increase sufficiently to compensate for the increased construction costs
–supply chain issues and increased difficulty for workforce recruitment which may lead to construction delays and increased project development costs
–claims for construction defects after a property has been developed
–poor performance or nonperformance by any of our joint venture partners or other third parties on whom we rely
–health and safety incidents and site accidents
–easement restrictions which may impact our development costs and timing
–compliance with building codes and other local regulations
–the inability to secure tenants necessary to support commercial projects

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inability

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Index to obtain construction financing for the development or redevelopment of properties;

Financial Statements

·

increased construction costs for a project that exceeded our original estimates due to increases in materials, labor or other costs, which could make completion of the project less profitable because market rents or condominium prices may not increase sufficiently to compensate for the increased construction costs;

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·

construction delays, which may increase project development costs;

·

claims for construction defects after a property has been developed;

·

poor performance or nonperformance by any of our joint venture partners or other third parties on whom we rely;

·

health and safety incidents and site accidents;

·

easement restrictions which may impact our development costs and timing;

·

compliance with building codes and other local regulations; and

·

the inability to secure tenants necessary to support commercial projects.

If any of the aforementioned risks were to occur during the development, redevelopment or construction of our properties, it could have a substantial negative impact on the project’s success and result in a material adverse effect on our financial condition or results of operations.

Development of properties entails a lengthy, uncertain and costly entitlement process.

Approval to develop real property sometimes requires political support and generally entails an extensive entitlement process involving multiple and overlapping regulatory jurisdictions and often requires discretionary action by local governments. Real estate projects must generally comply with local land development regulations and may need to comply with state and federal regulations. We incur substantial costs to comply with legal and regulatory requirements. An increase in legal and regulatory requirements may cause us to incur substantial additional costs, or in some cases cause us to determine that the property is not feasible for development. In addition, our competitors and local residents may challenge our efforts to obtain entitlements and permits for the development of properties. The process to comply with these regulations is usually lengthy and costly, may not result in the approvals we seek, and can be expected to materially affect our development activities.

Specifically, our redevelopment plans for the Seaport District are subject to a Uniform Land Use Review Procedure (“ULURP”) that requires approval by the New York City Council, the New York City Landmarks Preservation Commission and various other government agencies. Our inability to obtain or modify the ULURP could negatively affect our future redevelopment plans for the Seaport District.

Government regulations and legal challenges may delay the start or completion of the development of our communities, increase our expenses or limit our homebuilding or other activities.

Various local, state and federal statutes, ordinances, rules and regulations concerning building, health and safety, site and building design, environment, zoning, sales and similar matters apply to and/or affect the real estate development industry. In addition, our ability to obtain or renew permits or approvals and the continued effectiveness of permits already granted or approvals already obtained depends on factors beyond our control, such as changes in federal, state and local policies, rules and regulations and their interpretations and application.

Municipalities may restrict or place moratoriums on the availability of utilities, such as water and sewer taps. If municipalities in which we operate take such actions, it could have an adverse effect on our business by causing delays, increasing our costs or limiting our ability to operate in those municipalities. These measures may reduce our ability to open new MPCs and to build and sell other real estate development projects in the affected markets, including with respect to land we may already own, and create additional costs and administration requirements, which in turn may harm our future sales, margins and earnings.

In addition, there is a variety of legislation being enacted, or considered for enactment, at the federal, state and local level relating to energy and climate change. This legislation relates to items such as carbon dioxide emissions control and building codes that impose energy efficiency standards. New building code requirements that impose stricter energy efficiency standards could significantly increase our cost to construct buildings. Such environmental laws may affect, for example, how we manage storm water runoff, wastewater discharges and dust; how we develop or operate on properties on or affecting resources such as wetlands, endangered species, cultural resources, or areas subject to preservation laws; and how we address contamination. As climate change concerns continue to grow, legislation and regulations of this nature are expected to continue and become more costly to comply with. In addition, it is possible that some form of expanded energy efficiency legislation may be passed by the U.S. Congress or federal agencies and certain state legislatures, which may, despite being phased in over time, significantly increase our costs of building MPCs and the sale price to our buyers and adversely affect our sales volumes. We may be required to apply for additional approvals or modify our existing approvals because of changes in local circumstances or applicable law.

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Energy-related initiatives affect a wide variety of companies throughout the United States and the world and, because our operations are heavily dependent on significant amounts of raw materials, such as lumber, steel and concrete, they could have an indirect adverse impact on our operations and profitability to the extent the manufacturers and suppliers of our materials are burdened with expensive cap and trade and similar energy related taxes and regulations. Our noncompliance with environmental laws could result in fines and penalties, obligations to remediate, permit revocations and other sanctions.

Governmental regulation affects not only construction activities but also sales activities, mortgage lending activities and other dealings with consumers. Further, government agencies routinely initiate audits, reviews or investigations of our business practices to ensure compliance with applicable laws and regulations, which can cause us to incur costs or create other disruptions in our business that can be significant. Further, we may experience delays and increased expenses as a result of legal challenges to our proposed communities, whether brought by governmental authorities or private parties.

Our development projects may subject us to certain liabilities.


We may hire and supervise third-party contractors to provide construction, engineering and various other services for wholly-owned development projects or development projects undertaken by real estate ventures in which we hold an equity interest. Certain of these contracts are structured such that we are the principal rather than the agent. As a result, we may assume liabilities in the course of the project and be subjected to, or become liable for, claims for construction defects, negligent performance of work or other similar actions by third parties we have engaged.


Adverse outcomes of disputes or litigation could negatively impact our business, results of operations and financial condition, particularly if we have not limited the extent of the damages to which we may be liable, or if our liabilities exceed the amounts of the insurance that we carry. Moreover, our tenants and condominium owners may seek to hold us accountable for the actions of contractors because of our role even if we have technically disclaimed liability as a legal matter, in which case we may determine it necessary to participate in a financial settlement for purposes of preserving the tenant or customer relationship or to protect our corporate brand. Acting as a principal may also mean that we pay a contractor before we have been reimbursed by our tenants or have received the entire purchase price of a condominium unit from the purchaser. This exposes us to additional risks of collection in the event of a bankruptcy, insolvency or a condominium purchaser default. The reverse can occur as well, where a contractor we have paid files for bankruptcy protection or commits fraud with the funds before completing a project which we have funded in part or in full.


For example, we are directly paying the costs to repair certain construction defects at the Waiea condominium tower in Ward Village and will seek to recoup these costs from the general contractor and other responsible parties. We have subsequently entered into a settlement agreement with the Waiea homeowners association pursuant to which we have agreed to pay for the repair. We believe the general contractor is ultimately responsible for the defects and expect to recover our repair costs from the general contractor, other responsible parties and insurance proceeds; however, we can provide no assurances that all or any portion of these costs will be recovered. The Company recorded total estimated repair costs related to this matter of $99.2 million in 2020, $21.0 million in 2021, and $2.7 million in 2022.

Cybersecurity risks and incidents, such as a breach of the Company’s privacy or information security systems, or those of our vendors or other third parties, could compromise our information and expose us to liability, which would cause our business and reputation to suffer.

The protection of tenant, business partner, employee and company data is critically important to us. In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business information and that of our tenants and business partners and personally identifiable information of our employees on our networks. The collection and use of personally identifiable information are governed by federal and state laws and regulations. Privacy and information security laws continue to evolve and may be inconsistent from one jurisdiction to another. Compliance with all such laws and regulations may increase the Company’s operating costs and adversely impact the Company’s ability to market the Company’s properties and services.

Additionally, we rely on our information technology systems to be able to monitor and control our operations, adjust to changing market conditions and implement strategic initiatives. Any disruptions in these systems or the failure of these systems to operate as expected could adversely affect our ability to access and use certain applications and could, depending on the nature and magnitude of the problem, adversely affect our operating results by limiting our ability to effectively monitor and control our operations, adjust to changing market conditions and implement strategic initiatives.

The security measures that we and our vendors put in place cannot provide absolute security, and the information technology infrastructure we and our vendors use may be vulnerable to criminal cyber-attacks or data security incidents, including, ransom of data, such as, without limitation, tenant, business partner and/or employee information, due to employee error, malfeasance or other vulnerabilities. Any such incident could compromise our networks or our vendors’ networks (or the networks or systems of third parties that facilitate our business activities or our vendors’ business activities), and the information we or our vendors store could be accessed, misused, publicly disclosed, corrupted, lost or stolen, resulting in fraud, including wire fraud related to our assets, or other harm. Moreover, if a data security incident or breach affects our systems or our vendors’ systems, whether through a breach of our systems or a breach of the systems of third parties, or results in the unauthorized release of personally identifiable information, our reputation and brand could be materially damaged and we may be exposed to a risk of loss or litigation and possible liability, including, without limitation, loss related to the fact that agreements with our vendors, or our vendors’ financial condition, may not allow us to recover all costs related to a cyber-breach for which they alone are responsible for or which we are jointly responsible for, which could result in a material adverse effect on our business, results of operations and financial condition.
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Privacy and information security risks have generally increased in recent years because of the proliferation of new technologies, such as ransomware, and the increased sophistication and activities of perpetrators of cyber-attacks. Further, there has been a surge in widespread cyber-attacks during and since the COVID-19 pandemic, and the use of remote work environments and virtual platforms may increase our risk of cyber-attack or data security breaches. In light of the increased risks, we have dedicated substantial additional resources of expense, labor and time to strengthening the security of our computer systems. In the future, we may expend additional resources to continue to enhance our information security measures and/or to investigate and remediate any information security vulnerabilities. Despite these steps, there can be no assurance that we will not suffer a significant data security incident in the future, that unauthorized parties will not gain access to sensitive data stored on our systems or that any such incident will be discovered in a timely manner. Any failure in or breach of our information security systems, those of third-party service providers or a breach of other third-party systems that ultimately impacts our operational or information security systems as a result of cyber-attacks or information security breaches could result in a wide range of potentially serious harm to our business and results of operations. Further, the techniques used by criminals to obtain unauthorized access to sensitive data, such as phishing and other forms of human engineering, are increasing in sophistication and are often novel or change frequently; accordingly, we may be unable to anticipate these techniques or implement adequate preventative measures.

Global economic and political instability and conflicts, such as the conflict between Russia and Ukraine, could adversely affect our business, financial condition or results of operations.

Our business could be adversely affected by unstable economic and political conditions within the United States and foreign jurisdictions and geopolitical conflicts, such as the conflict between Russia and Ukraine. While we do not have any customer or direct supplier relationships in either country, the current military conflict, and related sanctions, as well as export controls or actions that may be initiated by nations (e.g., potential cyberattacks, disruption of energy flows, etc.) and other potential uncertainties could adversely affect our supply chain by causing shortages or increases in costs for materials necessary to construct homes and/or increases to the price of gasoline and other fuels. In addition, such events could cause higher interest rates, inflation or general economic uncertainty, which could negatively impact our business partners, employees or customers, or otherwise adversely impact our business.

Some of our directors are involved in other businesses including real estate activities and public and/or private investments and, therefore, may have competing or conflicting interests with us.

Certain of our directors have and may in the future have interests in other real estate business activities and may have control or influence over these activities or may serve as investment advisors, directors or officers. These interests and activities, and any duties to third parties arising from such interests and activities, could divert the attention of such directors from our operations. Additionally, certain of our directors are engaged in investment and other activities in which they may learn of real estate and other related opportunities in their non-director capacities. Our Code of Business Conduct and Ethics applicable to our directors expressly provides, as permitted by Section 122(17) of the Delaware General Corporation Law (the DGCL), that our non-employee directors are not obligated to limit their interests or activities in their non-director capacities or to notify us of any opportunities that may arise in connection therewith, even if the opportunities are complementary to, or in competition with, our businesses. Accordingly, we have no expectation that we will be able to learn of or participate in such opportunities. If any potential business opportunity is expressly presented to a director exclusively in his or her director capacity, the director will not be permitted to pursue the opportunity, directly or indirectly through a controlled affiliate in which the director has an ownership interest, without the approval of the independent members of our board of directors.

Pershing Square will have the ability to influence our policies and operations and its interests may not in all cases be aligned with other stockholders.

Pershing Square beneficially owns approximately 31.9% of our outstanding common stock as of December 31, 2022. Additionally, Mr. William Ackman, founder and Chief Executive Officer of Pershing Square, is the chairman of our board of directors. Accordingly, Pershing Square will have the ability to influence our policies and operations, including the appointment of management, future issuances of our common stock or other securities, the payment of dividends, if any, on our common stock, the incurrence or modification of debt by us, amendments to our amended and restated certificate of incorporation and amended and restated bylaws and the entering into of extraordinary transactions, and its interests may not in all cases be aligned with other stockholders’ interests.

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FINANCIAL RISKS

Our indebtedness and changing interest rates could adversely affect our business, prospects, financial condition or results of operations and prevent us from fulfilling our obligations under our Senior Notes.

Notes and Loan Agreements.


We have a significant amount of indebtedness. As of December 31, 2017,2022, our total consolidated debt was approximately $2.9$4.7 billion (excluding an undrawn balance of $30.0$200 million under our revolving facilities)on the Secured Bridgeland Notes) of which $1.2$2.1 billion was recourse to the Company.Company or one of its subsidiaries. In addition, as of December 31, 2022, we have $42.9$26.3 million of recourse guarantees associated with undrawn construction financing commitments as of December 31, 2017.commitments. As of December 31, 2017,2022, our proportionate share of the debt of our unconsolidated joint ventures (“Real Estate and Other Affiliates”) was $85.0$125.2 million based upon our economic ownership.interest. All of this indebtedness is without recourse to the debtCompany, with the exception of our Real Estate and Other Affiliates is non-recourse to us.

the collateral maintenance obligation for Floreo.


Subject to the limits contained in the indentureindentures governing the $1,000,000,000$475 million Bridgeland Notes due 2026, the $750 million 5.375% senior notes due 2025 (the “Senior Notes”)2028, the $650 million 4.125% senior notes due 2029, and the $650 million 4.375% senior notes due 2031 (collectively, the Senior Notes), and any limits under our other debt agreements, we may need to incur substantial additional indebtedness from time to time, including project indebtedness for developments by our subsidiaries. If we incur additional indebtedness or experience an adverse change in interest rates, the risks related to our level of indebtedness could intensify. Specifically, an increased level of indebtedness could have important consequences, including:

·

making it more difficult for us to satisfy our obligations with respect to our indebtedness, including the Senior Notes;

·

limiting our ability to obtain additional financing to fund future working capital, capital expenditures, debt service requirements, execution of our business strategy or finance other general corporate requirements;

–making it more difficult for us to satisfy our obligations with respect to our indebtedness, including the Senior Notes and Loan Agreements

·

requiring us to make non-strategic divestitures, particularly when the availability of financing in the capital markets is limited, which may adversely impact sales prices;

–limiting our ability to obtain additional financing to fund future working capital, capital expenditures, debt service requirements, execution of our business strategy or finance other general corporate requirements

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–requiring us to make non-strategic divestitures, particularly when the availability of financing in the capital markets is limited, which may adversely impact sales prices

–requiring a substantial portion of our cash flow to be allocated to debt service payments instead of other business purposes, thereby reducing the amount of cash flow available for working capital, capital expenditures, acquisitions, dividends and other general corporate purposes
–increasing our vulnerability to general adverse economic and industry conditions, including increases in interest rates, particularly given that certain indebtedness bears interest at variable rates

Table–limiting our ability to capitalize on business opportunities, reinvest in and develop properties and to react to competitive pressures and adverse changes in government regulations

–placing us at a disadvantage compared to other less leveraged competitors, if any
–limiting our ability, or increasing the costs, to refinance indebtedness
–resulting in an event of Contents

default if we fail to satisfy our obligations under our indebtedness, which default could result in all or part of our indebtedness becoming immediately due and payable and, in the case of our secured debt, could permit the lenders to foreclose on our assets securing such debt

·

requiring a substantial portion of our cash flow to be allocated to debt service payments instead of other business purposes, thereby reducing the amount of cash flow available for working capital, capital expenditures, acquisitions, dividends and other general corporate purposes;


·

increasing our vulnerability to general adverse economic and industry conditions, including increases in interest rates, particularly given that certain indebtedness bears interest at variable rates;

·

limiting our ability to capitalize on business opportunities, reinvest in and develop properties, and to react to competitive pressures and adverse changes in government regulations;

·

placing us at a disadvantage compared to other, less leveraged competitors;

·

limiting our ability, or increasing the costs, to refinance indebtedness; and

·

resulting in an event of default if we fail to satisfy our obligations under our indebtedness, which default could result in all or part of our indebtedness becoming immediately due and payable and, in the case of our secured debt, could permit the lenders to foreclose on our assets securing such debt.

The indentureindentures governing our Senior Notes, contains,the Loan Agreements and our other debt agreements contain restrictions whichthat may limit our ability to operate our business.


The indentureindentures governing our Senior Notes contains, and some of our other debt agreements contain certain restrictions.restrictions that may limit our ability to operate. In addition, the Loan Agreements contain representations and covenants customary for loan agreements of this type, including financial covenants related to maintenance of interest coverage ratios and loan-to-value ratios with respect to the certain mortgaged properties, taken as a whole. The Loan Agreements also contain customary events of default, certain of which are subject to cure periods. These restrictions limit our ability or the ability of certain of our subsidiaries to, among other things:

–incur indebtedness or issue equity
–create certain liens
–pay dividends on, redeem or repurchase capital stock or make other restricted payments
–make investments
–incur obligations that restrict the ability of our subsidiaries to make dividend or other payments to us
–consolidate, merge or transfer all, or substantially all, of our assets
–enter into or amend lease or other agreements or transactions without consent
–substitute collateral, if applicable, due to product and geographic concentrations
–enter into transactions with our affiliates
–create or designate unrestricted subsidiaries

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·

incur indebtedness or issue certain equity;

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·

create certain liens;

·

pay dividends on, redeem or repurchase capital stock or make other restricted payments;

·

make investments;

·

incur obligations that restrict the ability of our subsidiaries to make dividend or other payments to us;

·

consolidate, merge or transfer all or substantially all of our assets;

·

enter into transactions with our affiliates; and

·

create or designate unrestricted subsidiaries.

Additionally, certain of our debt agreements also contain various restrictive covenants, including minimum net worth requirements, maximum payout ratios on distributions, minimum debt yield ratios, minimum fixed charge coverage ratios, minimum interest coverage ratios and maximum leverage ratios.

The restrictions under the indentureindentures and/or other debt agreements could limit our ability to finance our future operations or capital needs, make acquisitions or pursue available business opportunities.


We may be required to take action to reduce our debt or act in a manner inconsistent with our business objectives and strategies to meet such ratios and satisfy the covenants in our debt agreements. Events beyond our control, includingsuch as changes in economic and business conditions inor the markets in which we operate,volatility and uncertainty created by COVID-19, may affect our ability to do so. We may not be able to meet the ratios or satisfy the covenants in our debt agreements, and we cannot assure you that our lenders will waive any failure to do so. A breach of any of the covenants in, or our inability to maintain the required financial ratios, under our debt agreements would likely result in a default under such debt agreements, which may accelerate the principal and interest payments of the debt and, if such debt is secured, result in the foreclosure on certain of our assets that secure such debt. A breach of any of the covenants in, or our inability to maintain the required financial ratios, under our debt agreements also would prevent us from borrowing additional money under such agreements that include revolving credit facilities. A default under any of our debt agreements could, in turn, result in defaults under other obligations and result in other creditors accelerating the payment of other obligations and foreclosing on assets securing such obligations, if any.

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Any such defaults could materially impair our financial condition and liquidity. In addition, if the lenders under any of our debt agreements or other obligations accelerate the maturity of those obligations, we cannot assure you that we will have sufficient assets to satisfy our obligations under the notes or our other debt.


We may be unable to develop and expand our properties without sufficient capital or financing.


Our business objective includes the development and redevelopment of our properties, particularly those in our Strategic Developments segment, which we may be unable to do if we do not have, cannot obtain or cannot obtaingenerate sufficient capital to finance any developmentfrom MPC land sales or redevelopment projects, including our inability to obtainoperations, debt capital from lenders or the capital markets, or government incentives, such as tax increment financing, to proceed with planned development, redevelopment or expansion activities. We may be unable to access or acquire financing due to the market volatility and uncertainty. We may be unable to obtain an anchor store, mortgage lender and property partner approvals that are required for any such development, redevelopment or expansion. We may abandon redevelopment or expansion activities already underway that we are unable to complete due to the inability to secure additional capital to finance such activities. This may result in charge-offs of costs previously capitalized. In addition, if redevelopment, expansion or reinvestment projects are unsuccessful, the investment in such projects may not be recoverable, in full or in part, from future operations or sale resulting in impairment charges.

Our business model includes entering into joint venture arrangements with strategic partners


We may be adversely affected by changes in LIBOR reporting practices, the method in which LIBOR is determined or the use of alternative reference rates.

On March 5, 2021, the ICE Benchmark Administration Limited, the administrator of LIBOR and our strategic partners may have different interests than us.

We currently havethe United Kingdom Financial Conduct Authority (FCA), which regulates the process for establishing London Interbank Offered Rate (LIBOR), announced that all LIBOR settings will either cease to be published by any benchmark administrator, or no longer be representative immediately after December 31, 2021, for most LIBOR settings, and immediately after June 30, 2023, for overnight, one-month, three-month, six-month and 12-month U.S. dollar LIBOR settings. Accordingly, the FCA has stated that it does not intend to persuade or compel banks to submit to LIBOR after such respective dates. As of January 1, 2022, publication of one-week and two-month U.S. dollar LIBOR has ceased, and regulated U.S. financial institutions are no longer permitted to enter into joint venture partnerships. These joint venture partners may bring local market knowledgenew contracts referencing any LIBOR settings. The Alternative Reference Rates Committee (ARRC), a committee convened by the Federal Reserve Board and relationships, development experience, industry expertise, financial resources, financing capabilities, brand recognitionthe New York Federal Reserve Bank, has proposed replacing U.S. dollar LIBOR with a new index based on trading in overnight repurchase agreements, the Secured Overnight Financing Rate (SOFR). The ARRC has formally announced and credibility or other competitive advantages. In the future,recommended SOFR as an alternative reference rate to LIBOR. At this time, we mayare not have sufficient resources, experience and/or skills to locate desirable partners. We also may not be able to attract partners who want to conduct businessaccurately predict whether SOFR will become the most prevalent alternative reference rate in the locations where our properties are located, and whomarket, or what impact the transition from LIBOR to alternative reference rates may have the assets, reputation or other characteristics that would optimize our development opportunities.

While we generally participate in making decisions for our jointly owned properties and assets, we might not always have the same objectives as the partner in relation to a particular asset, and we might not be able to formally resolve any issues that arise. In addition, actions by a partner may subject property owned by the joint venture to liabilities greater than those contemplated by the joint venture agreements, be contrary to our instructions or requests or result in adverse consequences. We cannot control the ultimate outcome of any decision made, which may be detrimental to our interests.

The bankruptcy or, to a lesser extent, financial distress of any of our joint venture partners could materially and adversely affect the relevant property or properties. If this occurred, we would be precluded from taking some actions affecting the estate of the other investor without prior court approval which would, in most cases, entail prior notice to other parties and a hearing. At a minimum, the requirement to obtain court approval may delay the actions we would or might want to take. If the relevant joint venture through which we have invested in a property has incurred recourse obligations, the discharge in bankruptcy of one of the other partners might result in our ultimate liability for a greater portion of those obligations than would otherwise be required.

Significant competition could have an adverse effect on our business.

The nature and extent of the competition we face depends on the type of property. With respect to our master planned communities, we compete with other landholders and residential and commercial property developers in the development of properties within the Las Vegas, Nevada; Houston, Texas; and Baltimore, Maryland/Washington, D.C. markets. A number of residential and commercial developers, some with greater financial and other resources, compete with us in seeking resources for development and prospective purchasers and tenants. Competition from other real estate developers may adversely affect our ability to attract purchasers and sell residential and commercial real estate, sell undeveloped rural land, attract and retain experienced real estate development personnel, or obtain construction materials and labor. These competitive conditions can make it difficult to sell land at desirable prices and can adversely affect ourbusiness, results of operations, and financial condition.

There Additionally, it is difficult to predict whether and to what extent banks will continue to provide submissions to the administrator of rate quotes for the U.S. dollar LIBOR settings that have not already been discontinued or, if they do, whether such rates will be representative of the underlying market or economic reality before they are numerous shopping facilitiesscheduled to be discontinued on June 30, 2023, or whether any additional reforms to LIBOR may be enacted in the United Kingdom or elsewhere.


As of December 31, 2022, we had approximately $309.6 million of mortgages, notes and loans payable indexed to LIBOR. During 2021 and 2022, we entered into certain new borrowings indexed to SOFR. It is anticipated that competeSOFR will be the benchmark for new borrowings and that we will modify certain existing borrowings to replace LIBOR with our operating retail propertiesSOFR. However, there can be no assurances on which benchmark rate(s) may replace LIBOR or how LIBOR will be determined for purposes of financial instruments that are currently referencing LIBOR when it ceases to exist, and the discontinuance of LIBOR may result in attracting retailers to lease space. In addition, retailers at these properties face continued competition from other retailers, including internet retailers, retailers at other regional shopping centers, outlet mallsuncertainty or differences in the calculation of the applicable interest rate or payment amount
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depending on the terms of the governing instruments and may also increase operational and other discount shopping centers, discount shopping clubs,risks to the Company and catalog companies. Competitionour industry. For example, if a published U.S. dollar LIBOR rate is unavailable, the interest rates on our mortgage notes, certain of this typewhich are indexed to LIBOR, will be determined using various alternative methods, any of which may result in interest obligations which are more than or do not otherwise correlate over time with the payments that would have been made on such debt if U.S. dollar LIBOR was available in its current form. Our financial instruments may require changes to documentation as well as enhancements and modifications to systems, controls, procedures and models, which could adversely affectpresent operational and legal challenges for us and our customers, investors and counterparties. There can be no assurance that we will be able to modify all existing financial instruments before the discontinuation of LIBOR. If such financial instruments are not remediated to provide a method for transitioning from LIBOR to an alternative reference rate, the New York state LIBOR legislation and proposed federal legislation related to the LIBOR transition may provide statutory solutions to implement an alternative reference rate and provide legal protection against litigation.

The market transition away from LIBOR to an alternative reference rate is complex, and any of these proposals or consequences could have a material adverse effect on our financing costs, and as a result, our financial condition, operating results and cash flows. We continue to monitor developments in the LIBOR transition and the proposed federal legislation related to the LIBOR transition to facilitate an orderly transition away from the use of operations and financial condition.

LIBOR.

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In addition, we compete with other major real estate investors with significant capital for attractive investment and development opportunities. These competitors include REITs and private institutional investors.

We are subject to risks associated with hedging arrangements.


We enter into interest rate swap agreements and other interest rate hedging contracts, including caps and cash settled forward starting swaps, to mitigate or reduce our exposure to interest rate volatility or to satisfy lender requirements. These agreements expose us to additional risks, including a risk that counterparties of these hedging and swap agreements will not perform. There also could be significant costs and cash requirements involved to fulfill our obligations under a hedging agreement. In addition, our hedging activities may not have the desired beneficial impact on interest rate exposure and have a negative impact on our business, financial condition and results of operations.


We may not realize the value of our tax assets.


Certain provisions of the Internal Revenue Code could limit our ability to fully utilize certain tax assets if we were to experience a “changechange in control. As of control.”December 31, 2022, we have approximately $132.7 million of federal net operating loss carryforwards. If such an eventcertain change in control events were to occur, the cash flow benefits we might otherwise have received wouldcould be eliminated. For example, we currently have approximately $147.1 million of federal net operating loss carryforwards, $25.0 million of which are subject to the separate return year limitation rules.

The effect of comprehensive United States tax reform legislation on the Company and its affiliates, whether adverse or favorable, is uncertain.

Changes to United States federal income tax rules and regulations could have material United States federal income tax consequences for the Company or aninvestment in the Company. On December 22, 2017, President Trump signed into law H.R. 1, known as the “Tax Cuts and Jobs Act” (the “Tax Act”) that significantly changes the United States federal income tax system. Among a number of significant changes to the current United States federal income tax rules, the Tax Act reduces the marginal United States corporate income tax rate from 35% to 21%, limits the deduction for net interest expense and compensation expense above $1.0 million, shifts the United States toward a more territorial tax system, and imposes new taxes to combat erosion of the United States federal income tax base. The effect of the Tax Act ondecreased.


Inflation has adversely affected us whether adverse or favorable, is uncertain, and may not become evident for some period of time. You are urgedcontinue to consult your tax advisor regarding the implications of the Tax Actfor an investment in the Company.

Because real estate is illiquid, we may not be able to sell properties when in our best interest.

Real estate investments generally, and in particular large office and mixed-use properties like those that we develop and construct, often cannot be sold quickly. The capitalization rates at which properties may be sold could be higher than historic rates, thereby reducing our potential proceeds from sale. Consequently, we may not be able to alter our portfolio promptly in response to changes in economic or other conditions. All of these factors reduce our ability to respond to changes in the performance of our investments and could adversely affect our business, financial condition and results of operations.

Inflation may adversely affect us by increasing costs beyond what we can recover through price increases.


The U.S. economy has experienced an increase in inflation recently. Inflation can adversely affect us by increasing costs of land, materials and labor.labor, which we have experienced in fiscal year 2022 due to higher inflation rates. Although we believe that sources of supply for raw materials and components are generally adequate, it is difficult to predict what effects price increases may have in the future. In addition, significant inflation is often accompanied by higher interest rates, which have a negative impact on demand for homes in our MPCs and demand for our condominium projects, and our ability to refinance existing indebtedness on favorable terms, or at all.all, due to higher borrowing costs. In an inflationary environment, depending on the homebuilding industry and other economic conditions, we may be precluded from raising land prices enough to keep up with the rate of inflation, which could significantly reduce our profit margins. In recent years we have been experiencing increases in the prices of labor and materials above the general inflation rate. Our inability to recoveroffset increasing costs due to inflation through price increases to customers could have a material adverse effect on our results of operations, financial conditions and cash flows.

Some of our properties are subject to potential natural or other disasters.

A number of our properties are located in areas which are subject to natural or other disasters, including hurricanes, floods, earthquakes and oil spills. We cannot predict the extent of damage that may result from such adverse weather events, which depend on a variety of factors beyond our control. Some of our properties, including Ward Village, Seaport District NYC and the Outlet Collection at Riverwalk are located in coastal regions, and could be affected by increases in sea levels, the frequency

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or severity of hurricanes and tropical storms, or environmental disasters, whether such events are caused by global climate changes or other factors. Additionally, adverse weather events can cause widespread property damage and significantly depress the local economies in which the Company operates and have an adverse impact on the Company’s business, financial condition and operations.

In late August 2017, Hurricane Harvey, a Category 4 hurricane, caused extensive and costly damage across Southeast Texas. The Houston area saw catastrophic flooding and unprecedented damage to residences and businesses. The Woodlands, Bridgeland and The Woodlands Hills are located outside of Houston, Texas. Although we do not believe that Hurricane Harvey will have significant long-term effects on our business, financial condition, or operations, we are unable to predict with certainty the full impact of the storm on the markets in which we operate. The Company will continue to monitor the residual effects of Hurricane Harvey on its business and customers. Similar future adverse weather events in Texas could potentially result in extensive and costly property damage to businesses and residences, force the relocation of residents, significantly disrupt economic activity in the region and potentially impact the overall desirability for businesses and employees to locate there.

Some potential losses are not insured.


We carry comprehensive liability, fire, flood, earthquake, terrorism, extended coverage and rental loss insurance on all of our properties. We believe the policy specifications and insured limits of these policies are adequate and appropriate. There are some types of losses, including lease and other contract claims, which generally are not insured. If an uninsured loss or a loss in excess of insured limits occurs, we could lose all or a portion of the capital invested in a property, as well as the anticipated future revenue from the property. If this happens, we might remain obligated for any mortgage debt or other financial obligations related to the property.

Loss


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REGULATORY, LEGAL AND ENVIRONMENTAL RISKS

Our development, construction and sale of key personnel could adversely affect our businesscondominiums are subject to state regulations and operations.

We depend onmay be subject to claims from the efforts of key executive personnel. The loss of the services of any key executive personnel could adversely affect our business and operations. While we believe we have proper succession planning and are confident we could attract and train new personnel if necessary, this could impose additional costs and hinder our business strategy. Competition for qualified personnel in our industry is intense.

Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer.

In the ordinary coursecondominium owner’s association at each project.


A portion of our business is dedicated to the development and sale of condominiums. Condominiums are generally regulated by an agency of the state in which they are located or where the condominiums are marketed to be sold. In connection with our development and offering of condominium units for sale, we collectmust submit regulatory filings to various state agencies and store sensitive data, including intellectualengage in an entitlement process by which real property our proprietary business information and that of our tenants and business partners and personally identifiable information of our employeesowned under one title is converted into individual units. Responses or comments on our networks. The secure processing, maintenancecondominium filings may delay our ability to sell condominiums in certain states and transmissionother jurisdictions in a timely manner, or at all. Further, we will be required to transfer control of this information is criticala condominium association’s board of directors once we trigger one of several statutory thresholds, with the most likely triggers being tied to our operations. Despite our security measures, our information technology and infrastructure may be vulnerablethe sale of not less than a majority of units to attacks by hackers or breaches due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks, and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other lossthird-party owners. Transfer of information couldcontrol can result in legal claims with respect to deficiencies in operating funds and reserves, construction defects and other condominium-related matters by the condominium association and/or proceedings and liability under laws that protect the privacy of personal information, whichthird-party condominium unit owners. Any material claims in these areas could adverselynegatively affect our business, financial conditionsreputation in condominium development and results of operations.

Possible terrorist activity or other acts of violence could adversely affectultimately have a material adverse effect on our business, financial condition and results of operations.

Future terrorist attacks


Development of properties entails a lengthy, uncertain and costly entitlement process.

Approval to develop real property sometimes requires political support and generally entails an extensive entitlement process involving multiple and overlapping regulatory jurisdictions and often requires discretionary action by local governments. Real estate projects must generally comply with local land development regulations and may need to comply with state and federal regulations. We incur substantial costs to comply with legal and regulatory requirements. An increase in legal and regulatory requirements may cause us to incur substantial additional costs, or in some cases cause us to determine that the property is not feasible for development. In addition, our competitors and local residents may challenge our efforts to obtain entitlements and permits for the development of properties. The process to comply with these regulations is usually lengthy and costly, may not result in the United Statesapprovals we seek and can be expected to materially affect our development activities.

Government regulations and legal challenges may delay the start or completion of the development of our communities, increase our expenses or limit our homebuilding or other acts of violence may result in declining economic activity, which could harmactivities.

Various local, state and federal statutes, ordinances, rules and regulations concerning building, health and safety, site and building design, environment, zoning, sales and similar matters apply to and/or affect the demand for goods and services offered by tenantsreal estate development industry. In addition, our ability to obtain or renew permits or approvals and the valuecontinued effectiveness of permits already granted or approvals already obtained depends on factors beyond our propertiescontrol, such as changes in federal, state and might adversely affect the value of an investment in our securities. Such a resulting decrease in retail demand could make it difficult to renewlocal policies, rules and regulations and their interpretations and application.

Municipalities may restrict or re-lease properties at lease rates equal to or above historical rates. Terrorist activities or violence also could directly affect the value of our properties through damage, destruction or loss, andplace moratoriums on the availability of insuranceutilities, such as water and sewer taps. If municipalities in which we operate take such actions, it could have an adverse effect on our business by causing delays, increasing our costs or limiting our ability to operate in those municipalities. These measures may reduce our ability to open new MPCs and to build and sell other real estate development projects in the affected markets, including with respect to land we may already own, and create additional costs and administration requirements, which in turn may harm our future sales, margins and earnings.

Governmental regulation affects not only construction activities but also sales activities, mortgage lending activities and other dealings with consumers. Further, government agencies routinely initiate audits, reviews or investigations of our business practices to ensure compliance with applicable laws and regulations, which can cause us to incur costs or create other disruptions in our business that can be significant. Further, we may experience delays and increased expenses as a result of legal challenges to our proposed communities, whether brought by governmental authorities or private parties.

We may be subject to increased compliance costs to comply with new and contemplated government regulations relating to energy standards and climate change.

A variety of legislation being enacted, or considered for enactment, at the federal, state and local level relating to energy and climate change. This legislation relates to items such acts, or of insurance generally, might be lower or cost more, whichas carbon dioxide emissions control and building codes that impose energy efficiency standards. New building code requirements that impose stricter energy efficiency standards could significantly increase our operating expensescost to construct buildings. Such environmental laws may affect, for example, how we manage storm water runoff, wastewater discharges and dust; how we develop or operate on properties on or affecting
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resources such as wetlands, endangered species, cultural resources, or areas subject to preservation laws; and how we address contamination. As climate change concerns continue to grow, legislation and regulations of this nature are expected to continue and to make compliance more costly. In addition, it is possible that some form of expanded energy efficiency legislation may be passed by the U.S. Congress or federal agencies and certain state legislatures, which may, despite being phased in over time, significantly increase our costs of building MPCs and the sale price to our buyers and adversely affect our financial conditionsales volumes. We may be required to apply for additional approvals or modify our existing approvals because of changes in local circumstances or applicable law.

Energy-related initiatives affect a wide variety of companies throughout the United States and resultsthe world and, because our operations are heavily dependent on significant amounts of operations. Toraw materials, such as lumber, steel and concrete, they could have an indirect adverse impact on our operations and profitability to the extent that tenantsthe manufacturers and suppliers of our materials are affected by future attacks, their businesses similarlyburdened with expensive cap and trade and similar energy-related taxes and regulations. Our noncompliance with environmental laws could be adversely affected, including their ability to continue to meet obligations under their existing leases. These acts might erode business and consumer confidence and spending and might result in increased volatility in nationalfines and international financial marketspenalties, obligations to remediate, permit revocations and economies. Any one of these events might decrease demand for real estate, decrease or delay the occupancy of new or redeveloped properties, and limit access to capital or increase the cost of capital.

other sanctions.

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We may be subject to potential costs to comply with environmental laws.


Future development opportunities may require additional capital and other expenditures to comply with laws and regulations relating to the protection of the environment. Under various federal, state or local laws, ordinances and regulations, a current or previous owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances released at a property and may be held liable to a governmental entity or to third parties for property damage or personal injuries and for investigation and clean-up costs incurred by the parties in connection with the contamination. These laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release of the hazardous or toxic substances. The presence of contamination or the failure to remediate contamination may adversely affect the owner'sowner’s ability to sell or lease real estate or to borrow using the real estate as collateral. Other federal, state and local laws, ordinances and regulations require abatement or removal of asbestos-containing materials in the event of demolition or certain renovations or remodeling, the cost of which may be substantial for certain redevelopments, and also govern emissions of and exposure to asbestos fibers in the air. Federal and state laws also regulate the operation and removal of underground storage tanks. In connection with our ownership, operation and management of certain properties, we could be held liable for the costs of remedial action with respect to these regulated substances or tanks or related claims.


We cannot predict with any certainty the magnitude of any expenditures relating to the environmental compliance or the long-range effect, if any, on our operations. Compliance with such laws has not had a material adverse effect on our operating results or competitive position in the past but could have such an effect on our operating results and competitive position in the future.


Compliance with the Americans with Disabilities Act may be a significant cost for us.


The Americans with Disabilities Act of 1990, as amended (“ADA”)(ADA), requires that all public accommodations and commercial facilities, including office buildings, meet certain federal requirements related to access and use by disabled persons. Compliance with ADA requirements could involve the removal of structural barriers from certain disabled persons'persons’ entrances which could adversely affect our financial condition and results of operations. Other federal, state and local laws may require modifications to or restrict further renovations of our properties with respect to such accesses. Noncompliance with the ADA or similar or related laws or regulations could result in the United States government imposing fines or private litigants being awarded damages against us. In addition, changes to existing requirements or enactments of new requirements could require significant expenditures. Such costs may adversely affect our business, financial and results of operations.

Some


Climate change may adversely affect our business.

As a result of climate change, we may experience extreme weather and changes in precipitation and temperature, all of which may result in physical damage or a decrease in demand for our properties located in the areas affected by these conditions. Should the impact of climate change be material in nature or occur for lengthy periods of time, our financial condition or results of operations would be adversely affected. In addition, many state and local governments are adopting or considering adopting regulations requiring that property owners and developers include in their development or redevelopment plans resiliency measures to address climate-change related risks. We may be required to incur substantial costs if such regulations apply to any of our directorsproperties.

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Water and electricity shortages could have an adverse effect on our business, financial condition and results of operations.

Drought conditions and increased temperatures in the Phoenix, Arizona and Las Vegas, Nevada, regions could cause our master planned communities in these regions to experience water and electricity shortages. The lack or reduced availability of electricity or water in these regions may make it more difficult or expensive for us to obtain approvals for new developments and could limit, impair or delay our ability to develop or sell, or increase the cost of developing, our land in these master planned communities.

Tax increases and changes in tax rules may adversely affect our financial results.

As a company conducting business with physical operations throughout North America, we are involvedexposed, both directly and indirectly, to the effects of changes in other businesses including real estate activitiesU.S., state and public and/or private investmentslocal tax rules. Taxes for financial reporting purposes and therefore, may have competing or conflicting interests with us.

Certain of our directors have and maycash tax liabilities in the future may be adversely affected by changes in such tax rules.


The Biden administration has announced in 2022 and 2021, and in certain cases has enacted, a number of tax proposals to fund new government investments in infrastructure, healthcare, and education, among other things. Certain of these proposals involve an increase in the domestic corporate tax rate, which if implemented could have interestsa material impact on our future results of operations and cash flows.

GENERAL RISKS

Loss of key personnel could adversely affect our business and operations.

We depend on the efforts of key executive personnel. The loss of the services of any key executive personnel could adversely affect our business and operations. While we believe we have proper succession planning and are confident we could attract and train new personnel if necessary, this could impose additional costs and hinder our business strategy. Competition for qualified personnel in our industry is intense.

Possible terrorist activity or other acts of violence could adversely affect our financial condition and results of operations.

Future terrorist attacks in the United States or other acts of violence may result in declining economic activity, which could harm the demand for goods and services offered by tenants and the value of our properties and might adversely affect the value of an investment in our securities. Such a resulting decrease in retail demand could make it difficult to renew or re-lease properties at lease rates equal to or above historical rates. Terrorist activities or violence also could directly affect the value of our properties, including a high-profile property such as the Seaport, through damage, destruction or loss, and the availability of insurance for such acts, or of insurance generally, might be lower or cost more, which could increase our operating expenses and adversely affect our financial condition and results of operations. To the extent that tenants are affected by future attacks, their businesses similarly could be adversely affected, including their ability to continue to meet obligations under their existing leases. These acts might erode business and consumer confidence and spending and might result in increased volatility in national and international financial markets and economies. Any one of these events might decrease demand for real estate, business activities,decrease or delay the occupancy of new or redeveloped properties, and may have controllimit access to capital or influence over these activities or may serve as investment advisors, directors or officers. These interests and activities, and any duties to third parties arising from such interests and activities, could divertincrease the attentioncost of such directors from our operations. Additionally, certain of our directors are engaged in investment and other activities in which they may learn of real estate and other related opportunities in their non-director capacities. Our Code of Business Conduct and Ethics applicable to our directors expressly provides, as permitted by Section 122(17) of the Delaware General Corporation Law (the “DGCL”), that our non-employee directors are not obligated to limit their interests or activities in their non-director capacities or to notify us of any opportunities that may arise in connection therewith, even if the opportunities are complementary to, or in competition with, our businesses. Accordingly, we have no expectation that we will be able to learn of or participate in such opportunities. If any potential business opportunity is expressly presented to a director exclusively in his or her director capacity, the director will not be permitted to pursue the opportunity, directly or indirectly through a controlled affiliate in which the director has an ownership interest, without the approval of the independent members of our board of directors.

There is a risk of investor influence over our company that may be adverse to our best interests and those of our other stockholders.

Pershing Square Capital Management, L.P. and its affiliates (collectively, “Pershing Square”) own approximately 5.1% of our outstanding common stock and have economic exposure under cash-settled total return swaps to an additional 5,399,839 notional shares of our common stock, equaling a fully diluted economic interest of approximately 17.7% of our outstanding shares. Mr. William Ackman, our Chairman, is the CEO and founder of Pershing Square. Pershing Square has the ability to influence our policies and operations, including the appointment of management, future issuances of our common stock or other securities, the payment of dividends, if any, on our common stock, the incurrence or modification of debt by us, amendments to our amended and restated certificate of incorporation and amended and restated bylaws and the entering into

capital.

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of extraordinary transactions, and its interests may not in all cases be aligned with the interests of other stockholders.

In addition, under the stockholder agreement between us and Pershing Square, if we make a public or non-public offering of our common stock (or securities convertible or exchangeable into common stock), Pershing Square has a right to acquire the securities for the same price and on the same terms up to the amount needed for it to maintain its then aggregate proportionate common stock-equivalent interest in the Company on a fully diluted basis. This right will terminate for Pershing Square when it beneficially owns less than 5% of our outstanding shares on a fully diluted basis.

The concentration of ownership of our outstanding common stock held by Pershing Square and other substantial stockholders, combined with Pershing Square’s additional economic exposure under cash-settled total return swaps, may make some transactions more difficult or impossible without the support of these stockholders, or more likely with the support of these stockholders. The interests of our substantial stockholders could conflict with or differ from the interests of our other stockholders. For example, the concentration of ownership held by Pershing Square and other substantial stockholders, even if these stockholders are not acting in a coordinated manner, could allow Pershing Square and other substantial stockholders to influence our policies and strategy and could delay, defer or prevent a change of control or impede a merger, takeover or other business combination that management and our board of directors believe may otherwise be favorable to us and our other stockholders.

Risks Related to Our Common Stock

Our stock price may continue to be volatile.


The trading price of our common stock is likely to continue to be volatile due to the stock market’s routine periods of large or extreme volatility. This volatility often has been unrelated or disproportionate to the operating performance of particular companies, including ours. Factors that affect our trading price include the following:

–results of operations that vary from the expectations of securities analysts and investors, including our ability to finance and achieve operational success at the Seaport project
–changes in expectations as to our future financial performance, including financial estimates and investment recommendations by securities analysts and investors
–announcements by us or our competitors of new significant real-estate developments, acquisitions, joint ventures, other strategic relationships or actions, or capital commitments, or responses to these events
–changes in general economic or market conditions, including increases in interest rates, or trends in our industry or markets
–future sales of our common stock or other securities
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·

results

RISK FACTORS
Table of operations that vary from the expectations of securities analysts and investors, including our abilityContents
Index to finance and achieve operational success at the Seaport District NYC project;

Financial Statements

·

results of operations that vary from those of our competitors;

–the successful transition of our new senior executives and the services and contribution of our other senior management and key employees to execute on our business strategies and to identify new opportunities

·

change in expectations as to our future financial performance, including financial estimates and investment recommendations by securities analysts and investors;

–guidance, if any, that we provide to the public, any changes in this guidance, or our failure to meet this guidance

·

declines in the market prices of stocks generally, particularly those in the real estate industry;

–the development and sustainability of an active trading market for our stock

·

strategic actions by us or our competitors;

–changes in accounting principles

·

announcements by us or our competitors of new significant real-estate developments, acquisitions, joint ventures, other strategic relationships, or capital commitments;

–events or factors resulting from natural disasters

·

changes in general economic or market conditions, including increases in interest rates, or trends in our industry or markets;

–other events or factors, including those resulting from war, acts of terrorism, or responses to these events

·

changes in business or regulatory conditions;


·

future sales of our common stock or other securities;

·

investor perceptions or the investment opportunity associated with our common stock relative to other investment alternatives;

·

the public’s response to press releases or other public announcements by us or third parties, including our filings with the Securities and Exchange Commission;

·

announcements relating to litigation;

·

guidance, if any, that we provide to the public, any changes in this guidance, or our failure to meet this guidance;

·

the development and sustainability of an active trading market for our stock;

·

changes in accounting principles;

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·

events or factors resulting from natural disasters, such as the impact of Hurricane Harvey in the Houston, Texas area; and

·

other events or factors, including those resulting from war, acts of terrorism, or responses to these events.

These broad market and industry fluctuations may adversely affect the market price of our common stock, regardless of our actual operating performance. In addition, price volatility may be greater if the public float and trading volume of our common stock is low.

In the past, following periods of market volatility, stockholders have instituted securities class action litigation. If we were involved in securities litigation, it could have a substantial cost and divert resources and the attention of executive management from our business regardless of the outcome of such litigation.


Provisions in our certificate of incorporation, our by-laws, Delaware law, stockholdersstockholder’s rights agreement and certain other agreements may prevent or delay an acquisition of us, which could decrease the trading price of our common stock.


Our certificate of incorporation and bylaws contain the following limitations:

·

the inability of our stockholders to act by written consent;

·

restrictions on the ability of stockholders to call a special meeting without 15% or more of the voting power of the issued and outstanding shares entitled to vote generally in the election of our directors;

–the inability of our stockholders to act by written consent

·

rules regarding how stockholders may present proposals or nominate directors for election at stockholder meetings;

–restrictions on the ability of stockholders to call a special meeting without 15% or more of the voting power of the issued and outstanding shares entitled to vote generally in the election of our directors

·

the right of our board of directors to issue preferred stock without stockholder approval;

–rules regarding how stockholders may present proposals or nominate directors for election at stockholder meetings

·

a requirement that, to the fullest extent permitted by law, certain proceedings against or involving us or our directors or officers be brought exclusively in the Court of Chancery in the State of Delaware; and

–the right of our board of directors to issue preferred stock without stockholder approval

·

that certain provisions may be amended only by the affirmative vote of at least 66 2/3% of the shares of common stock entitled to vote generally in the election of directors.

–a requirement that, to the fullest extent permitted by law, certain proceedings against or involving us or our directors or officers be brought exclusively in the Court of Chancery in the State of Delaware

–that certain provisions may be amended only by the affirmative vote of at least 66 2/3% of the shares of common stock entitled to vote generally in the election of directors

In addition, we are a Delaware corporation, and Section 203 of the Delaware General Corporation Law (the “DGCL”)DGCL applies to us. In general, Section 203 prevents an "interested stockholder"interested stockholder from engaging in certain "business combinations"business combinations with us for three years following the date that person becomes an interested stockholder subject to certain exceptions. The statute generally defines "interested stockholder"an interested stockholder as any person that is the owner of 15% or more of the outstanding voting stock or is our affiliate or associate and was the owner of 15% or more of outstanding voting stock at any time within the three-year period immediately before the date of determination.


We have granted a waiver of the applicability of the provisions of Section 203 of the DGCL to Pershing Square Capital Management, L.P., PS Management GP, LLC and William A. Ackman, chairman of our Board (together, Pershing Square) such that Pershing Square may increase its position in our common stock up to 40% of the outstanding shares without being subject to Section 203’s restrictions on business combinations. Additionally, in connection with the tender offer that was closed on November 28, 2022, the Board granted Pershing Square and its affiliates a waiver that covered any common shares purchased pursuant to the tender offer. Immediately following the closing of such tender offer, Pershing Square owned 30.4% of the outstanding stock. As such, Pershing Square, through its ability to accumulate more common stock than would otherwise be permitted under Section 203, has the ability to become a large holder that would be able to affect matters requiring approval by Company stockholders, including the election of directors and approval of mergers or other business combination transactions. The Board also amended the Company’s Corporate Governance Guidelines to reflect that it will grant to any stockholder a waiver of the applicability of Section 203 of the DGCL to the acquisition of up to 40% of the Company’s outstanding voting stock upon the request of such stockholder, subject to the Board’s fiduciary duties and applicable law.

These anti-takeover provisions could make it more difficult for a third party to acquire us, even if the third-party’s offer may be considered beneficial by many of our stockholders. As a result, our stockholders may be limited in their ability to obtain a premium for their shares. These provisions could limit the price that investors might be willing to pay in the future for shares of our common stock. There also may be dilution of our common stock from the exercise of outstanding warrants, which may materially adversely affect the market price and negatively impact a holder’s investment.

ITEM


COVID-19 disrupted our business a resurgence of the pandemic could have a material adverse effect on our business, financial performance and condition, operating results and cash flows.

COVID-19 disrupted our business and a resurgence of the pandemic could have a material adverse effect on our business, financial performance and condition, operating results and cash flows, and could materially adversely impact
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Index to Financial Statements
and cause disruption to, our business, financial performance and condition, operating results and cash flows. Additionally, any future public health issues such as an epidemic or pandemic could adversely affect our business or financial results. Factors that would negatively impact our ability to successfully operate during and after COVID-19 or other future public health issues include:
–our ability to continue to sell land to residential homebuilders and developers in our MPCs at attractive prices, which would lead to lower land sales revenue in our MPC segment, if such homebuilders continue to see a decline in new home sales to their consumers or if there is reduced availability of loans to support such homebuilders
–our ability to continue to collect rents, on a timely basis or at all, without reductions or other concessions, in multi-family and office properties
–our ability to collect rent from our retail tenants
–reductions in demand for leased space and/or defaults under our leases
–fluctuations in regional and local economies, the residential housing and condominium markets, local real estate conditions, and tenant rental rates
–disruptions to supply chains continue and significant inflation has been seen in the market
–our ability to continue to make condominium sales in Hawai‘i and land sales in our MPCs
–our and our tenants’ ability to continue or complete construction as planned for their operations, or delays in the supply of materials or labor necessary for construction
–the continued service and availability of personnel, including our executive officers and other leaders that are part of our management team and our ability to recruit, attract and retain skilled personnel to the extent our management or personnel are impacted in significant numbers or in other significant ways by the outbreak of pandemic or epidemic disease
–our ability to ensure business continuity in the event our continuity of operations plan is not effective or improperly implemented or deployed during a disruption
–delays in, or our ability to complete, sales of our remaining non-core assets on the expected terms or timing
–difficulty accessing debt and equity capital on attractive terms, or at all, and a severe disruption and instability in the global financial markets or deterioration in credit and financing conditions that may affect our access to capital necessary to fund business operations or address maturing liabilities

The extent to which the COVID-19 pandemic may have a continued impact on our operations will depend on future developments, which are highly uncertain, cannot be predicted with confidence, and are largely outside of our control, including the scope, severity and duration of the pandemic, the spread of other potential new variants, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. Future disruptions and governmental actions, due to COVID-19 or a different epidemic or pandemic, combined with any associated economic and/or social instability or distress, may have an adverse impact on our results of operations, financial condition and cash flows.

Item 1B.  UNRESOLVED STAFF COMMENTS

Unresolved Staff Comments

None.

ITEM

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Item 2.  PROPERTIES 

Properties


Our corporate headquarters are located in Dallas, Texas and New York, New York.The Woodlands, Texas. We also maintain offices at certain of our properties nationwide, including The Woodlands, Texas; Honolulu, Hawaii;Hawai‘i; New York, New York; Columbia, Maryland; and Las Vegas, Nevada, which serve operations across all segments.Nevada; and Phoenix, Arizona. We believe our present facilities are sufficient to support our operations.

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Master Planned Communities

Our MPCs are located in and around Houston, Texas; Las Vegas, Nevada; and Columbia, Maryland. The following table summarizes our MPCs, all of which are wholly-owned as of December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Remaining 

 

Projected 

 

 

 

Undiscounted/

 

 

 

 

Total

 

Approx. No.

 

 

 

Average Price Per Acre

 

Saleable 

 

Community 

 

Average Cash

 

Uninflated Value

 

 

 

 

Gross

 

People Living

 

Remaining Saleable Acres

 

($ in thousands)

 

Residential 

 

Sell-Out

 

Margin (e)

 

($ in millions)

Community

  

Location

  

Acres (a)

  

in Community

  

Residential (b)

  

Commercial (c)

  

Residential

  

Commercial

  

Lots (d)

  

 Date

  

Residential

  

Residential

  

Commercial

Bridgeland

 

Houston, TX

 

11,470

 

8,800

 

2,440

 

1,535

 

$

377

 

$

470

 

14,500

 

 

2045

 

81%

 

$

745

 

$

721

Maryland

 

Columbia, MD

 

16,450

 

112,000

 

 —

 

97

 

 

N/A

 

 

576

 

 —

 

 

2021

 

N/A

 

 

N/A

 

 

56

Summerlin

 

Las Vegas, NV

 

22,500

 

108,000

 

3,568

 

821

 

 

584

 

 

759

 

39,000

(f)  

 

2039

 

75%

 

 

1,562

 

 

623

The Woodlands

 

Houston, TX

 

28,475

 

116,000

 

231

 

743

 

 

628

 

 

945

 

736

 

 

2026

 

98%

 

 

144

 

 

702

The Woodlands Hills

 

Conroe, TX

 

2,055

 

 —

 

1,425

 

171

 

 

313

 

 

552

 

5,000

 

 

2029

 

85%

 

 

379

 

 

94

Total

 

 

 

80,950

 

344,800

 

7,664

 

3,367

 

 

 

 

 

 

 

59,236

 

 

 

 

 

 

$

2,830

 

$

2,196

(a)

Encompasses all of the land located within the borders of the master planned community, including parcels already sold, saleable parcels and non-saleable areas such as roads, parks and recreation areas, conservation areas and parcels acquired during the year.

OPERATING ASSETS

(b)

Includes standard and custom residential land parcels. Standard residential lots are designed for detached and attached single family homes, ranging from entry-level to luxury homes. Certain residential parcels are designated as custom lots as their premium price reflects a larger size and other distinguishing features such as location within a gated community, having golf course access or higher elevations.


(c)

Designated for retail, office, resort, high density residential projects (condominiums and apartments), services and other for-profit activities, as well as those parcels allocated for use by government, schools, houses of worship and other not-for-profit entities.

(d)

Remaining Saleable Residential Lots are estimates and include only lots that are intended for sale or joint venture. The mix of intended use on our remaining saleable and developable acres is primarily based on assumptions regarding entitlements and zoning of the remaining project and are likely to change over time as the master plan is refined.

(e)

Average Cash Margin represents the total projected cash profit (total projected cash sales minus remaining projected cash development expenditures excluding land costs), divided by total projected cash sales.

(f)

Amount represents remaining entitlements and not necessarily the number of lots that may ultimately be developed and sold.

The Summit

Within our Summerlin MPC, we are currently developing an exclusive luxury community named The Summit, which is being developed and managed through a joint venture with Discovery Land Company (“Discovery”), a leading developer of luxury communities and private clubs. The 555-acre community is expected to consist of approximately 262 homes, an 18-hole Tom Fazio designed golf course and other amenities for residents.

In 2015, we contributed undeveloped land to the venture at an agreed upon value of $125.4 million, or $226,000 per acre. Discovery is required to fund up to a maximum of $30.0 million cash for development costs as their capital contribution, and we have no further capital obligations. After the return of our capital invested in the project and a 5.0% preferred return, Discovery is entitled to cash distributions by the joint venture until it has received two times its equity contribution. Any further cash distributions are shared 50/50. Discovery is the manager on the project, and land development began in the second quarter of 2015. Through December 31, 2017, 146 custom homesites and 74 built product homesites, including bungalows and villas, were mapped and available for sale, of which the joint venture has sold and closed on 77 of the homesites for $240.8 million, with 17 of these closing for $55.9 million in the year ended December 31, 2017. The golf course was completed and opened to the members of the golf club in October 2017. The clubhouse and related amenities are in the final planning stages with construction expected to commence in 2018. See further discussion in “Item 7. - Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Operating Assets

In our Operating Assets segment, we own a variety of asset types including retail, office, multi-family, hospitality and other assets and investments. Our portfolio includes approximately 7.08.8 million square feet of retail and office 1,623properties, 5,030 wholly and partially-ownedpartially owned multi-family units, 913 combined keys at hospitality properties, and wholly and partially owned other properties and investments. In addition to several other locations, ourOur assets in this segment are primarily located in and around Houston, Texas (The Woodlands and Bridgeland); Columbia, Maryland; Honolulu, Hawaii;Maryland (Columbia); Las Vegas, Nevada; New York, New York;Nevada (Summerlin); and Honolulu, Hawai‘i (Ward Village).


The following table summarizes certain metrics of our office assets within our Operating Assets segment as of December 31, 2022:
Office AssetsRentable Sq.Ft./Units% LeasedAnnualized
Base Rent
(thousands)
(a)		Annualized
Base Rent Per
 Square Foot
(a)		Effective 
Annual Rent
(thousands)
(b)		Effective 
Annual Rent per
Square Foot 
(b)		Year Built /
Acquired / Last Renovated
The Woodlands
Creekside Park Medical Plaza(c)32,689—%$—$—$—$—2022
One Hughes Landing197,71955%3,37130.745,14946.952013
Two Hughes Landing197,71478%4,65630.167,10346.012014
Three Hughes Landing320,81595%8,67428.9513,00443.412016
1725 Hughes Landing Boulevard331,17665%5,11227.367,46539.952015
1735 Hughes Landing Boulevard318,170100%8,04025.2713,00540.872015
2201 Lake Woodlands Drive24,119100%45819.0086035.642011
Lakefront North258,05898%6,22324.649,06735.912018
Memorial Hermann Medical Office Building(d)20,000100%————2022
8770 New Trails(d)180,000100%————2020
9303 New Trails97,96742%70719.401,12730.952011
3831 Technology Forest Drive95,078100%2,39625.203,57837.632014
3 Waterway Square232,02191%5,97428.338,83441.902013
4 Waterway Square218,55180%4,60926.267,00039.882011
The Woodlands Towers at The Waterway(e)1,401,04883%32,06529.4245,41841.672019
1400 Woodloch Forest95,66784%2,12126.322,14526.622011
4,020,792
Columbia
10 - 70 Columbia Corporate Center890,79779%17,98826.3818,51627.152012 / 2014
Columbia Office Properties63,83184%1,12534.131,16035.172004 / 2007
One Mall North97,08862%1,77831.411,93334.162016
One Merriweather206,632100%7,96938.578,27340.042017
Two Merriweather124,01698%4,78239.224,91640.322017
6100 Merriweather319,20094%7,83335.868,08437.012019
1,701,564
Summerlin
Aristocrat(d)181,534100%————2018
1700 Pavilion(c)265,89850%————2022
One Summerlin206,27989%7,24241.027,50742.522015
Two Summerlin144,615100%5,38037.205,57838.572018
798,326
Total6,520,682
(a)Annualized Base Rent is calculated as the monthly Base Minimum Rent for the property for December 31, 2022, multiplied by 12. Annualized Base Rent Per Square Foot is the Annualized Base Rent for the property at December 31, 2022, divided by the average occupied square feet. 
(b)Effective Annual Rent includes base minimum rent and common area maintenance recovery revenue. Effective Annual Rent Per Square Foot is the Effective Annual Rent divided by the average occupied square feet.
(c)Creekside Park Medical Plaza was placed in service during the fourth quarter of 2022 and currently has no executed leases. 1700 Pavilion was placed in service during the fourth quarter of 2022 at 2% occupancy. As such, Annualized Base Rent and Effective Annual Rent are not yet applicable.
(d)These properties are build-to-suit projects entirely leased by a single tenant. Therefore, the Annualized Base Rent and Effective Annual Rent details have been excluded for competitive reasons.
(e)The Woodlands Texas. Towers at the Waterway includes 1201 Lake Robbins and 9950 Woodloch Forest.

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The following table summarizes certain metrics of the retail

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properties (does not include any retail square feet within our multi-family or office assets) within our Operating Assets segment as of December 31, 2017: 

2022: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail Properties

    

Location

    

Rentable Sq.Ft./Units

 

% Leased

 

Annualized Base Rent
(In thousands) (a)

 

Annualized Base Rent Per Square Foot (a)

 

Year Built/ Acquired/Last Renovated

Retail PropertiesRentable Sq.Ft./Units% LeasedAnnualized
Base Rent
(thousands)
(a)		Annualized
Base Rent Per
 Square Foot
(a)		Year Built / Acquired / Last Renovated

The Woodlands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Woodlands
Creekside Park WestCreekside Park West72,97697%$1,516$24.292019

Hughes Landing Retail

 

The Woodlands, TX

 

126,131

 

98.8

%

 

$

3,902

 

$

31.31

 

2015		Hughes Landing Retail125,80393%3,82535.642015

Creekside Village Green

 

The Woodlands, TX

 

74,669

 

90.7

 

 

 

1,982

 

 

29.27

 

2015
1701 Lake Robbins1701 Lake Robbins12,376100%52442.342014

20/25 Waterway Avenue

 

The Woodlands, TX

 

50,062

 

100.0

 

 

 

1,734

 

 

34.64

 

2007 / 2009

20/25 Waterway Avenue50,06283%1,56537.642011

Waterway Garage Retail

 

The Woodlands, TX

 

21,513

 

99.8

 

 

 

759

 

 

35.35

 

2011		Waterway Garage Retail21,513100%83839.062011

1701 Lake Robbins

 

The Woodlands, TX

 

12,376

 

100.0

 

 

 

503

 

 

40.67

 

2014

2000 Woodlands Parkway

 

The Woodlands, TX

 

7,900

 

100.0

 

 

 

217

 

 

27.50

 

1996		2000 Woodlands Parkway7,900100%25532.252016

 

 

 

292,651

 

 

 

 

 

 

 

 

 

 

 

290,630
BridgelandBridgeland
Lakeland Village Center at BridgelandLakeland Village Center at Bridgeland67,94784%1,79231.392016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Columbia

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Columbia

Columbia Regional Building

 

Columbia, MD

 

89,199

 

100.0

 

 

 

2,463

 

 

27.61

 

2014		Columbia Regional Building89,199100%2,74130.722014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Seaport District

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Seaport District NYC - Historic Area/Uplands

 

New York, NY

 

122,921

(b)

 

92.0

 

 

 

N/A

 

 

N/A

 

2016
Merriweather District Area 3 RetailMerriweather District Area 3 Retail(b)10,700100%—2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

99,899

Summerlin

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Summerlin

Downtown Summerlin

 

Las Vegas, NV

 

824,421

(c)

 

96.6

 

 

 

21,800

 

 

29.04

 

2014		Downtown Summerlin(c)803,145100%24,22730.782014 / 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ward Village

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ward Village

Ward Village Retail - Pending Redevelopment

 

Honolulu, HI

 

633,283

(d)

 

83.1

 

 

 

11,854

 

 

22.53

 

2002		Ward Village Retail - Pending Redevelopment403,22583%7,67322.882002

Ward Village - New or Renovated

 

Honolulu, HI

 

286,129

 

99.5

 

 

 

12,937

 

 

45.43

 

2015		Ward Village - New or Renovated499,88391%20,06244.182012 - 2022

 

 

 

919,412

 

 

 

 

 

 

 

 

 

 

 

903,108

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outlet Collection at Riverwalk

 

New Orleans, LA

 

264,462

(e)

 

99.8

 

 

 

8,184

 

 

31.20

 

2014

Lakeland Village Center at Bridgeland

 

Houston, TX

 

83,466

 

74.8

 

 

 

1,309

 

 

22.35

 

2016

 

 

 

347,928

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

2,596,532

 

 

 

 

 

 

 

 

 

 

 

Total2,164,729

(a)Annualized Base Rent is calculated as the monthly Base Minimum Rent for the property for December 31, 2022, multiplied by 12. Annualized Base Rent Per Square Foot is the Annualized Base Rent for the property at December 31, 2022, divided by the average occupied square feet. 
(b)Merriweather District Area 3 Retail is entirely leased by a single tenant. Therefore, the Annualized Base Rent and Effective Annual Rent details have been excluded for competitive reasons.
(c)Excludes 381,767 square feet of anchors and 39,700 square feet of additional office space above our retail space.

HHC 2022 FORM 10-K | 27

(a)

Annualized Base Rent is calculated as the monthly Base Minimum Rent for the property for December 31, 2017 multiplied by 12. Annualized Base Rent Per Square Foot is the Annualized Base Rent for the property at December 31, 2017 divided by the average occupied square feet. 

PROPERTIES
Table of Contents
Index to Financial Statements

(b)

A significant portion of the project is on a ground lease where we are the ground lessee. The existing square feet in service as of December 31, 2017 are referenced above. Upon completion of the Pier 17 and Tin Building reconstruction and redevelopment, Seaport District NYC (inclusive of Historic Area/Uplands, Pier 17 and Tin Building) will be approximately 449,527 square feet, as further discussed in Strategic Developments.

(c)

Excludes 381,767 square feet of anchors, 206,279 square feet for ONE Summerlin and 36,914 square feet of additional office space above our retail space.

(d)

As of December 31, 2017, approximately 226,466 square feet of this total has closed and transferred to our Strategic Developments segment.

(e)

The entire project is subject to a ground lease where we are the ground lessee.

21

Table of Contents

The following table summarizes certain metrics of our office assets within our Operating Assets Segment as of December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Office Assets

 

Location

   

Rentable Sq.Ft./Units

 

% Leased

 

Annualized

Base Rent

(In thousands) (a)

 

Annualized Base Rent Per Square Foot (a)

 

Effective 

Annual Rent

(In thousands) (b)

 

Effective Annual Rent per Square Foot (b)

   

 

Year Built/
Acquired/ Last Renovated

The Woodlands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1725 Hughes Landing Boulevard

 

The Woodlands, TX

 

331,754

 

69.8

%

 

$

5,366

 

$

23.16

 

$

7,110

 

$

30.69

 

 

2015

Three Hughes Landing

 

The Woodlands, TX

 

320,815

 

57.3

 

 

 

3,087

 

 

27.28

 

 

4,209

 

 

35.61

 

 

2016

1735 Hughes Landing Boulevard

 

The Woodlands, TX

 

318,170

 

100.0

 

 

 

7,283

 

 

22.89

 

 

10,295

 

 

32.36

 

 

2015

3 Waterway Square

 

The Woodlands, TX

 

232,021

 

100.0

 

 

 

6,484

 

 

27.95

 

 

9,487

 

 

40.89

 

 

2013

4 Waterway Square

 

The Woodlands, TX

 

218,551

 

100.0

 

 

 

6,392

 

 

29.25

 

 

8,338

 

 

38.15

 

 

2010

One Hughes Landing

 

The Woodlands, TX

 

197,719

 

100.0

 

 

 

5,646

 

 

28.56

 

 

8,355

 

 

42.26

 

 

2013

Two Hughes Landing

 

The Woodlands, TX

 

197,714

 

97.8

 

 

 

5,478

 

 

28.77

 

 

8,034

 

 

42.20

 

 

2014

9303 New Trails

 

The Woodlands, TX

 

97,967

 

58.2

 

 

 

1,261

 

 

22.13

 

 

1,882

 

 

33.04

 

 

2008

1400 Woodloch Forest

 

The Woodlands, TX

 

95,667

 

96.6

 

 

 

2,745

 

 

29.70

 

 

2,882

 

 

30.53

 

 

1981

3831 Technology Forest Drive

 

The Woodlands, TX

 

95,078

 

100.0

 

 

 

2,159

 

 

22.70

 

 

3,025

 

 

31.82

 

 

2014

2201 Lake Woodlands Drive (c)

 

The Woodlands, TX

 

24,119

 

100.0

 

 

 

333

 

 

13.80

 

 

NM

 

 

NM

 

 

1994

 

 

 

 

2,129,575

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Columbia

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10-70 Columbia Corporate Center

 

Columbia, MD

 

888,474

 

92.6

 

 

 

21,832

 

 

26.65

 

 

22,011

 

 

26.87

 

 

2012 / 2014

One Merriweather

 

Columbia, MD

 

202,603

 

81.3

 

 

 

3,333

 

 

29.35

 

 

3,342

 

 

29.43

 

 

2017

Two Merriweather

 

Columbia, MD

 

124,635

 

58.2

 

 

 

2,571

 

 

35.45

 

 

2,571

 

 

35.45

 

 

2017

One Mall North

 

Columbia, MD

 

98,607

 

98.7

 

 

 

2,874

 

 

29.52

 

 

2,918

 

 

29.97

 

 

2016

Columbia Office Properties (d)

 

Columbia, MD

 

61,598

 

100.0

 

 

 

1,681

 

 

27.29

 

 

1,790

 

 

29.06

 

 

1969/1972

 

 

 

 

1,375,917

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Summerlin

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ONE Summerlin

 

Las Vegas, NV

 

206,279

 

95.2

 

 

 

6,804

 

 

35.44

 

 

6,804

 

 

35.44

 

 

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

110 North Wacker (e)

 

Chicago, IL

 

226,000

 

100.0

 

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

1957

Total

 

 

 

3,937,771

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

Annualized Base Rent is calculated as the monthly Base Minimum Rent for the property for December 31, 2017 multiplied by 12. Annualized Base Rent Per Square Foot is the Annualized Base Rent for the property at December 31, 2017 divided by the average occupied square feet. 

(b)

Effective Annual Rent includes base minimum rent and common area maintenance recovery revenue. Effective Annual Rent Per Square Foot is the Effective Annual Rent divided by the average occupied square feet.

(c)

2201 Lake Woodlands Drive serves as temporary space for tenants relocating to permanent space; therefore, the Effective Annual Rent per Square Foot data is not meaningful.

(d)

Excludes the Ridgely Building which was moved to Strategic Developments in the fourth quarter of 2017.

(e)

Per the early termination agreement, tenant stopped paying rent in 2017 and vacated the premises effective January 2018. We began demolition of the building in the first quarter of 2018, and construction is expected to begin in the second quarter of 2018.

The following tables summarize certain metrics of our multi-family hospitality, andOperating Assets as of December 31, 2022:

Multi-family Assets
Ownership %		# UnitsRetail Sq. Ft.% Units LeasedAverage Monthly RateAverage Monthly Rate Per Square FootYear Built / Acquired / Last Renovated
The Woodlands
Creekside Park Apartments100%292—96%$1,738$1.772018
Creekside Park The Grove100%360—96%1,8521.882021
Millennium Six Pines Apartments100%314—95%2,0662.152016
Millennium Waterway Apartments100%393—96%1,7241.922012
One Lakes Edge100%39022,97194%2,2392.272015
Two Lakes Edge100%38611,44898%2,8442.852020
The Lane at Waterway100%163—96%2,6202.382020
Bridgeland
Lakeside Row100%312—96%1,8951.932019
Starling at Bridgeland100%358—35%2,2372.392022
Columbia
Juniper Apartments100%38255,67796%2,2042.472020
Marlow100%47232,69211%2,0702.652022
The Metropolitan Downtown Columbia50%38013,59190%2,3462.482015
m.flats/TEN.M50%43728,02694%2,1852.462018
Summerlin
Constellation Apartments100%124—95%2,6192.342017
Tanager Apartments100%267—94%2,3482.412019
Total5,030164,405

The following tables summarize certain metrics of our other Operating Assets as of December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Multi-family Assets

 

Location

    

Economic
Ownership %

 

# Units

 

 

Retail Square Feet

 

 

% Leased

 

 

Average Monthly Rate

 

 

Average Monthly Rate Per Square Foot

 

 

Year Built / Acquired / Last Renovated

The Woodlands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Millennium Six Pines Apartments

 

The Woodlands, TX

 

100

%  

 

314

 

 

 —

 

 

 

98.4

%  

 

$

1,971

 

 

$

2.06

 

 

2014

 

Millennium Waterway Apartments

 

The Woodlands, TX

 

100

 

 

393

 

 

 —

 

 

 

95.9

 

 

 

1,817

 

 

 

2.02

 

 

2010

 

One Lakes Edge

 

The Woodlands, TX

 

100

 

 

390

 

 

23,280

 

 

 

98.2

 

 

 

2,308

 

 

 

2.34

 

 

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Columbia

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Metropolitan Downtown Columbia

 

Columbia, MD

 

50

 

 

380

 

 

13,591

 

 

 

95.0

 

 

 

1,966

 

 

 

2.08

 

 

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Summerlin

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Constellation

 

Las Vegas, NV

 

100

 

 

124

 

 

 —

 

 

 

97.6

 

 

 

2,114

 

 

 

1.66

 

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Seaport District

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

85 South Street

 

New York, NY

 

100

 

 

22

 

 

13,000

 

 

 

95.5

 

 

 

3,628

 

 

 

1.89

 

 

2014

 

 

 

 

 

 

 

 

1,623

 

 

49,871

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2022:

22

Other Assets
Ownership %		Asset TypeSq. Ft. / Acres / Units / Spaces% LeasedYear Built / Acquired / Last Renovated
The Woodlands
HHC 242 Self-Storage100%Storage634 units93%2017
HHC 2978 Self-Storage100%Storage730 units92%2017
Hughes Landing Daycare100%Daycare10,000 sq. ft.100%2019
Houston Ground Leases100%Ground leaseN/AN/AVarious
Stewart Title of Montgomery County, TX50%Title CompanyN/AN/A—
Woodlands Sarofim #120%Industrial129,790 sq. ft.86%late 1980's
The Woodlands Warehouse100%Warehouse125,801 sq. ft.100%2019
Summerlin
Hockey Ground Lease100%Ground leaseN/AN/A2017
Las Vegas Aviators100%Minor League 
Baseball Team		N/AN/A2017
Las Vegas Ballpark100%BallparkN/AN/A2019
Summerlin Hospital Medical Center5%HospitalN/AN/A1997
Ward Village
Kewalo Basin HarborGround LeaseMarina55 acresN/A2019
Other
Parking Garages (a)100%Garage6,748 spacesN/AVarious

(a)Includes parking garages in The Woodlands, Columbia and Ward Village.

Table of Contents

HHC 2022 FORM 10-K | 28

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hospitality Assets

 

Location

    

Economic
Ownership %

 

# Keys

 

2017 Average Daily Rate

 

 

2017 Revenue Per Available Room

 

Year Built / Acquired / Last Renovated

The Woodlands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Embassy Suites at Hughes Landing

 

The Woodlands, TX

 

100

%  

 

205

 

$

191.48

 

 

$

154.58

 

 

 

2015

 

The Westin at The Woodlands

 

The Woodlands, TX

 

100

 

 

302

 

 

205.95

 

 

 

144.77

 

 

 

2016

 

The Woodlands Resort & Conference Center

 

The Woodlands, TX

 

100

 

 

406

 

 

204.80

 

 

 

108.92

 

 

 

2014

(a)

(a)

The Woodlands Resort & Conference Center was built in 1974, expanded in 2002, and renovated in 2014.

PROPERTIES
Table of Contents
Index to Financial Statements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Assets

 

Location

 

Economic
Ownership %

 

Asset Type

 

Square Feet / Acres / Units

 

 

% Leased

 

Year Built / Acquired / Last Renovated

The Woodlands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Woodlands Parking Garages

 

The Woodlands, TX

 

100

%  

 

Garage

 

 

2,988

 

 

 

N/A

 

 

 

2008/2009

(a)

Woodlands Sarofim #1

 

The Woodlands, TX

 

20

 

 

Industrial

 

 

129,790

 

 

 

71.4

%  

 

 

late 1980s

 

Stewart Title of Montgomery County, TX

 

The Woodlands, TX

 

50

 

 

Title Company

 

 

 —

 

 

 

N/A

 

 

 

—

 

HHC 242 Self-Storage

 

The Woodlands, TX

 

100

 

 

Storage

 

 

654

 

 

 

37.0%

 

 

 

2017

 

HHC 2978 Self-Storage

 

The Woodlands, TX

 

100

 

 

Storage

 

 

784

 

 

 

33.9%

 

 

 

2017

 

Woodlands Ground Lease

 

The Woodlands, TX

 

100

 

 

Ground lease

 

 

N/A

 

 

 

N/A

 

 

 

2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Summerlin

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Summerlin Hospital Medical Center

 

Las Vegas, NV

 

5

 

 

Hospital

 

 

 —

 

 

 

N/A

 

 

 

1997

 

Las Vegas 51s

 

Las Vegas, NV

 

100

 

 

Minor League Baseball Team

 

 

 —

 

 

 

N/A

 

 

 

2017

 

Hockey Ground Lease

 

Las Vegas, NV

 

100

 

 

Ground lease

 

 

N/A

 

 

 

N/A

 

 

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ward Village

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Kewalo Basin Harbor

 

Honolulu, HI

 

Lease

 

 

Marina

 

 

55 acres

 

 

 

N/A

 

 

 

—

 

(a)

The Woodlands Parking Garages consist of two garages: Woodloch Forest Garage, built in 2008, and Waterway Square Garage, built in 2009.

The following table summarizes our Operating SegmentAssets segment lease expirations:

 

 

 

 

 

 

 

 

 

 

$ in thousands$ in thousands

Year

    

Number of Expiring Leases

    

Total Square Feet Expiring

    

Total 
Annualized Base 
Rent Expiring 
(in thousands)

    

% of Total 
Annual Gross Rent Expiring

YearNumber of Expiring Leases (a)Total Square Feet ExpiringTotal Annualized Base Rent Expiring% of Total Annual Gross Rent Expiring

2018

 

187

(a)

291,545

 

$

8,506,561

 

4.8

%

2019

 

123

 

639,017

 

 

12,669,664

 

7.1

 

2020

 

131

 

435,588

 

 

11,644,558

 

6.6

 

2021

 

74

 

435,456

 

 

11,524,889

 

6.5

 

2022

 

117

 

848,444

 

 

12,282,270

 

6.9

 

2023

 

80

 

588,995

 

 

20,056,641

 

11.3

 

2023106 454,752 $20,343 5.8 %

2024

 

68

 

596,966

 

 

15,037,891

 

8.5

 

202498 507,257 21,102 6.0 %

2025

 

141

 

767,541

 

 

29,081,412

 

16.4

 

2025141 959,768 45,459 13.0 %

2026

 

36

 

205,246

 

 

6,377,186

 

3.6

 

202688 476,081 20,059 5.7 %

2027

 

47

 

621,887

 

 

18,227,733

 

10.3

 

202774 930,811 38,576 11.0 %

2028+

 

72

 

1,141,695

 

 

32,106,417

 

18.0

 

2028202862 549,965 24,490 7.0 %
2029202937 507,348 22,394 6.4 %
2030203034 581,096 29,072 8.3 %
2031203128 260,589 13,936 4.0 %
2032203230 1,107,376 58,695 16.7 %
2033+2033+66 1,318,070 56,586 16.1 %

Total

 

1,076

 

6,572,380

 

$

177,515,222

 

100.0

%

Total764 7,653,113 $350,712 100.0 %
(a)Excludes leases with an initial term of 12 months or less.

HHC 2022 FORM 10-K | 29

(a)

Includes 95 specialty leases totaling 76,580 square feet which expire in less than 365 days.

PROPERTIES
Table of Contents
Index to Financial Statements

Strategic Developments

MASTER PLANNED COMMUNITIES

Our MPCs are located in and around Houston, Texas; Las Vegas, Nevada; Phoenix, Arizona; and Columbia, Maryland. The following table summarizes our MPCs as of December 31, 2022:
Total GrossApprox. No.Remaining Saleable AcresAverage Price Per Acre (thousands) (b)Projected Community Sell-Out DateAverage Cash Margin (c)
CommunityLocationAcres (a)ResidentsResidentialCommercialResidentialCommercialResidentialCommercialResidential
BridgelandCypress, TX11,50620,0002,1791,157$544$6792036204587%
ColumbiaColumbia, MD16,450112,000—96—580N/A2024 (f)N/A
SummerlinLas Vegas, NV22,500123,0002,6187009021,1722043203978%
TeravalisPhoenix, AZ33,810—17,7709,5783322042081208188%
The Woodlands (d)The Woodlands, TX28,545120,000437372,4939612025203496%
The Woodlands HillsConroe, TX2,0552,3757361673335312030203086%
Total114,866377,37523,34612,435
Floreo (e)Phoenix, AZ3,029—1,2303373051732034203561%
(a)Encompasses all of the land located within the borders of the master planned community, including parcels already sold, saleable parcels and non-saleable areas such as roads, parks and recreation areas, conservation areas and parcels acquired during the year.
(b)Average Price Per Acre is the uninflated weighted-average land value per acre which reflects current market values being attained by the Company, or at new projects, is based on third-party market data.
(c)Average Cash Margin represents the total projected cash profit (total projected cash sales minus remaining projected cash development expenditures), divided by total projected cash sales. It is calculated based on future revenues and future projected non-reimbursable development costs, capitalized overhead, capitalized taxes and capitalized interest.
(d)The Woodlands residential land development is nearing completion. The remaining saleable residential acreage includes land in Aria Isle, an exclusive gated community.
(e)The Company owns a 50% interest in this unconsolidated venture, however the data above is presented at 100%. See below for additional details.
(f)Columbia land development is complete. The sale of remaining land and/or development of additional commercial assets will occur as the market dictates.

The Summit

Within our Summerlin MPC, an exclusive luxury community named The Summit is being developed and managed through a joint venture with Discovery Land Company (Discovery), a leading developer of luxury communities and private clubs. The original 555-acre community is nearing completion and consists of approximately 270 homes including 32 condominiums. In 2022, the Company contributed an additional 54 acres to The Summit adjacent to the existing Summit community to develop approximately 28 custom home sites. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 2 - Investments in Unconsolidated Ventures in the Notes to Consolidated Financial Statements under Item 8 of this Form 10-K for further details.

Floreo

Floreo, the first village to be developed in our recently acquired Teravalis MPC, will be developed and managed through a 50% joint venture. The 3,029-acre village is located in the greater Phoenix, Arizona area and is expected to consist of approximately 5,000 residential lots, commercial sites, as well as a planned business park. Land sales are expected to commence at Floreo in the second half of 2023 subject to market conditions. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 2 - Investments in Unconsolidated Ventures in the Notes to Consolidated Financial Statements under Item 8 of this Form 10-K for further details.

HHC 2022 FORM 10-K | 30
PROPERTIES
Table of Contents
Index to Financial Statements
Seaport

The Seaport, located on the East River in Lower Manhattan, encompasses several city blocks (inclusive of Historic Area/Uplands, Pier 17, Tin Building and the 250 Water Street development) and totals approximately 473,000 square feet of innovative culinary, entertainment and cultural experiences.

The following table summarizes certain metrics of the Seaport as of December 31, 2022:
$ in thousandsLandlord Operations (a)Landlord Operations - Multi-family (b)Managed Businesses (c)Tin Building (d)Events and Sponsorships (e)Total
Rentable Sq. Ft. / Units
Total Sq. Ft. / units346,13613,000/2151,60653,78321,077
Leased Sq. Ft. / units(f)195,201—/2150,97053,78321,077
% Leased or occupied(f)56%—%/100%99%100%100%
Development
Development costs incurred(g)$ 564,791$ —$ —$ 195,524$ —$ 760,315 
Estimated total costs (excl. land)(g)594,368——204,870—  799,238 
(a)Landlord Operations represents physical real estate in the Historic District and Pier 17 developed and owned by HHC and leased to third parties.
(b)Landlord Operations - Multi-family represents 85 South Street which includes base-level retail in addition to residential units.
(c)Managed Businesses represents retail and food and beverage businesses in the Historic District and Pier 17 that HHC owns, either wholly or through joint ventures, and operates, including through license and management agreements.
(d)The Company owns 100% of the Tin Building which was completed and placed in service during the third quarter of 2022. The Company leased 100% of the space to the Tin Building by Jean-Georges joint venture, in which the Company has an equity ownership interest.
(e)Events and Sponsorships includes private events, catering, sponsorships, concert series and other rooftop activities.
(f)The square footage and percent leased for Landlord Operations includes agreements with terms of less than one year.
(g)Development costs incurred and Estimated total costs (excl. land) are shown net of insurance proceeds of approximately $64.7 million.

HHC 2022 FORM 10-K | 31
PROPERTIES
Table of Contents
Index to Financial Statements
STRATEGIC DEVELOPMENTS

We continue to plan, develop plan to develop,and hold or seek development rights for unique properties primarily in New York, New York; Honolulu, Hawaii;Ward Village, The Woodlands, Texas;Bridgeland, Summerlin, Columbia Maryland; and Las Vegas, Nevada.Teravalis. We continue to execute our strategic plans for developing several of these assets with construction either actively underway or pending. Once stabilized, Strategic Developments are transferred into our Operating Assets segment and increase recurring cash flow.

The majority of our Total Estimated Costs of projects currently Under Construction relate to our projectswhen the asset is placed in Honolulu and in New York at the Seaport District. Ward Village, our key development in Honolulu, Hawaii, is a globally recognized urban master planned community offering integration with local culture, access to parks and public amenities, unique retail experiences, exceptional residences and desirable workforce housing. Seaport District, located on the East River in Lower Manhattan, encompasses seven buildings on several city blocks and will total 396,527 square feet,  excluding 53,000 square feet related to the Tin Building, of innovative culinary, fashion, entertainment and cultural experiences. Highlights include the renovated Pier 17, with a 1.5-acre rooftop that will have a restaurant, outdoor bars and a venue for special events, scheduled to open throughout 2018.

service.

23


Table of Contents

The following table summarizes our Strategic Developments projects as of December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Location

    

Size / GLA

    

Size 
(Acres)

    

Total Estimated Cost
(in thousands)

 

Construction Start

 

Estimated Completion

 

Estimated Stabilization Date

Strategic Developments Under Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Woodlands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Creekside Park Apartments

 

The Woodlands, TX

 

292 units

 

14

 

$

42,111

 

Q1 2017

 

Q3 2018

 

2019

100 Fellowship Drive

 

The Woodlands, TX

 

203,000

 

14

 

 

63,278

 

Q1 2017

 

2019

 

2019

Lake Woodlands Crossing Retail

 

The Woodlands, TX

 

60,300 retail

 

 8

 

 

15,381

 

Q4 2017

 

Q4 2018

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Columbia

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

m.flats/TEN.M (a)

 

Columbia, MD

 

437 units

 

 5

 

 

109,000

 

Q1 2016

 

Q1 2018

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ward Village

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ae`o

 

Honolulu, HI

 

466 units / 68,300 retail

 

 3

 

 

428,508

 

Q1 2016

 

2019

 

N/A

Anaha

 

Honolulu, HI

 

317 units / 16,100 retail

 

 2

 

 

401,314

 

Q4 2014

 

Opened

(b)

N/A

Ke Kilohana

 

Honolulu, HI

 

424 units / 21,900 retail

 

 1

 

 

218,898

 

Q3 2016

 

2019

 

N/A

Waiea

 

Honolulu, HI

 

174 units / 8,200 retail

 

 2

 

 

424,604

 

Q2 2014

 

Opened

(b)

N/A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Seaport District

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Seaport District NYC - Pier 17 and Historic Area / Uplands

 

New York, NY

 

396,131

(c)

 6

 

 

622,883

 

Q4 2013

 

Q4 2018

 

2021

Seaport District NYC - Tin Building

 

New York, NY

 

53,396 retail

 

 1

 

 

161,812

 

Q4 2017

 

Q1 2020

 

2021

33 Peck Slip (a)

 

New York, NY

 

66 rooms

 

N/A

 

 

67,000

 

Q1 2017

 

Q2 2018

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Summerlin

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aristocrat

 

Las Vegas, NV

 

2 buildings / 90,000 each

 

12

 

 

46,661

 

Q2 2017

 

Q2 2018

 

2019

Las Vegas Ballpark

 

Las Vegas, NV

 

—

 

 9

 

 

—

(d)

—

(d)

—

(d)

N/A

Two Summerlin

 

Las Vegas, NV

 

145,000

 

 4

 

 

49,538

 

Q2 2017

 

Q3 2018

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Future Strategic Developments Rights or Pending Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Columbia

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

American City Building

 

Columbia, MD

 

—

 

 1

 

 

 

 

 

 

 

 

 

Three Merriweather

 

Columbia, MD

 

—

 

 4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Summerlin

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

80% Interest in Fashion Show Air Rights

 

Las Vegas, NV

 

—

 

—

 

 

 

 

 

 

 

 

 

Downtown Summerlin Apartments

 

Las Vegas, NV

 

—

 

 9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AllenTowne

 

Allen, TX

 

—

 

238

 

 

 

 

 

 

 

 

 

Bridgeland Apartments

 

Cypress, TX

 

—

 

15

 

 

 

 

 

 

 

 

 

Bridges at Mint Hill

 

Charlotte, NC

 

—

 

210

 

 

 

 

 

 

 

 

 

Circle T Ranch and Power Center (a)

 

Dallas / Ft. Worth, TX

 

—

 

198

 

 

 

 

 

 

 

 

 

Cottonwood Mall

 

Holladay, UT

 

—

 

54

 

 

 

 

 

 

 

 

 

The Elk Grove Collection

 

Elk Grove, CA

 

—

 

64

 

 

 

 

 

 

 

 

 

West Windsor

 

West Windsor, NJ

 

—

 

658

 

 

 

 

 

 

 

 

 

Landmark Mall

 

Alexandria, VA

 

—

 

33

 

 

 

 

 

 

 

 

 

Maui Ranch Land

 

Maui, HI

 

—

 

20

 

 

 

 

 

 

 

 

 

Ridgely Building

 

Columbia, MD

 

—

 

 1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Land

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Woodlands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Woodlands Commercial Land

 

The Woodlands, TX

 

—

 

 4

(e)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Columbia

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Merriweather District Land

 

Columbia, MD

 

—

 

27

(f)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ward

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ward Commercial Land

 

Honolulu, HI

 

—

 

17

(g)

 

 

 

 

 

 

 

 

2022:

$ in thousandsLocationSize / GLA (a)Size 
(Acres)		Total Estimated CostConstruction StartEstimated CompletionEstimated Stabilization Date
Strategic Developments Under Construction
Columbia
South Lake Medical Office BuildingColumbia, MD86,000 sq ft2$44,833Q3 202220242027
Bridgeland
WingspanCypress, TX263 units2986,548Q2 202220242026
Summerlin
Tanager EchoLas Vegas, NV294 units386,853Q2 2021Q2 20232026
Summerlin South OfficeLas Vegas, NV147,000 sq ft953,942Q4 2022Q4 20232026
Ward Village
Under Construction
The Park Ward VillageHonolulu, HI545 units / 26,800 sq ft3620,065Q4 20222025N/A
Victoria PlaceHonolulu, HI349 units2503,271Q1 20212024N/A
Completed (b)
‘A‘ali‘iHonolulu, HI750 units / 11,175 sq ft2394,908Q4 2018CompletedN/A
Kō'ulaHonolulu, HI565 units / 36,854 sq ft2487,039Q3 2019CompletedN/A
Completed and Sold Out
Ae‘oHonolulu, HI465 units / 70,800 sq ft3430,737Q1 2016CompletedN/A
AnahaHonolulu, HI317 units / 16,048 sq ft2403,974Q4 2014CompletedN/A
Ke KilohanaHonolulu, HI423 units / 28,386 sq ft1218,406Q4 2016CompletedN/A
WaieaHonolulu, HI177 units / 7,716 sq ft2598,664Q2 2014CompletedN/A
Future Strategic Developments Rights or Pending Construction
Columbia
Lakefront District (c)Columbia, MD1,914,000 sq ft
Summerlin
80% Interest in Fashion Show Air RightsLas Vegas, NV——
Ward Village
KalaeHonolulu, HI329 units / 2,000 sq ft3
Ulana Ward VillageHonolulu, HI696 units / 32,100 sq ft5
Other
West End Alexandria (d)Alexandria, VA—41
Commercial Land
The Woodlands
The Woodlands Commercial Land (e)The Woodlands, TX—13
Columbia
Merriweather District (e)Columbia, MD—15
Ward
Ward Commercial Land (e)Honolulu, HI—9
(a)For condominium units, single-family and multi-family assets, square feet represents ground floor retail space whereas units represents residential units for sale or rent.
(b)There are 31 units remaining to be sold at ‘A‘ali‘i and 15 units remaining to be sold at the newly completed Kō‘ula.
(c)Represents remaining square footage approved for new mixed-use development in the Lakefront District which will include office, retail and residential assets.
(d)Represents acreage owned through a joint venture.
(e)Represents land acquired or transferred to the Strategic Developments segment for future development, excluding acreage related to assets that are now in service in our Operating Assets segment or related to completed or under construction condominium towers.
HHC 2022 FORM 10-K | 32

(a)

These are unconsolidated joint venture partnerships.

OTHER INFORMATION
Table of Contents
Index to Financial Statements

(b)

Waiea and Anaha opened and residents began occupying units in November 2016 and October 2017, respectively. All retail has been placed in service.

Item 3.  Legal Proceedings

(c)

This represents total square footage for Pier 17 and Uplands, including Fulton Market Building, a portion of which has been placed in service.


(d)

See further discussion in Management’s Discussion and Analysis on the current status of the Las Vegas Ballpark.

(e)

Represents land transferred to the Strategic Developments segment in 2015 for future development at The Woodlands.

(f)

Represents land transferred to the Strategic Developments segment in 2015 for future development in the Merriweather District in Columbia, Maryland, excluding acreage relating to One and Two Merriweather, now in service in our Operating Assets Segment, and Three Merriweather pending construction (see above).

(g)

Represents land transferred to the Strategic Developments segment for future development at Ward Village, excluding acreage related toAe`o, Anaha, Ke Kilohana and Waiea.

ITEM 3.   LEGAL PROCEEDINGS

We, as part of our normal business activities, are a party to a number of legal proceedings. Management periodically assesses our liabilities and contingencies in connection with these matters based upon the latest information available. We disclose material pending legal proceedings pursuant to Securities and Exchange Commission rules and other pending matters as we may determine to be appropriate. As of December 31, 2017,2022, management believes that any monetary liability or financial impact of claims or potential claims to which we might be subject after final adjudication of any legal procedures would not be material to our financial

24

Table of Contents

position or our results of operations or cash flows.

ITEMoperations. See Note 10 - Commitments and Contingencies in the Notes to Consolidated Financial Statements under Item 8 of this Form 10-K for further discussion.


Item 4.  MINE SAFETY DISCLOSURE

Mine Safety Disclosure

Not applicable.

PART II

ITEM


HHC 2022 FORM 10-K | 33
OTHER INFORMATION
Table of Contents
Index to Financial Statements
PART II

Item 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

The Company’sfor Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities


MARKET INFORMATION

Our common stock is traded on the New York Stock Exchange (the “NYSE”)NYSE) under the symbol “HHC”. The following table shows the high and low sales prices of our common stock on the NYSE, as reported in the consolidated transaction reporting system for each quarter of fiscal 2017 and 2016.

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Price Range

 

    

High

    

Low

Year Ended December 31, 2017

 

 

 

 

 

 

Fourth Quarter

 

$

131.79

 

$

116.92

Third Quarter

 

 

126.77

 

 

114.47

Second Quarter

 

 

130.00

 

 

115.24

First Quarter

 

 

119.00

 

 

105.33

Year Ended December 31, 2016

 

 

 

 

 

 

Fourth Quarter

 

$

118.84

 

$

103.30

Third Quarter

 

 

121.71

 

 

110.85

Second Quarter

 

 

115.61

 

 

98.43

First Quarter

 

 

109.14

 

 

81.34

HHC. No dividends have been declared or paid in 20172022 or 2016.2021. Any future determination related to our dividend policy will be made at the discretion of our board of directors and will depend on a number of factors, including future earnings, capital requirements, restrictions under debt agreements, financial condition and future prospects and other factors the board of directors may deem relevant.

Number of Holders of Record


NUMBER OF HOLDERS OF RECORD

As of February 20, 2018,2023, there were 1,8811,236 stockholders of record of our common stock.

25


PERFORMANCE GRAPH

Table of Contents


Performance Graph

The following performance graph compares the yearly dollar change in the cumulative total shareholderstockholder return on our common stock with the cumulative total returns of the NYSE Composite Index, MSCI US REIT Index and the group of companies in the MorningstarS&P 500 Real Estate – General Index. The graph tracks the performance of a $100 investment in our common stock and in each of the indexes during the last five fiscal years ended December 31, 2022. The graph was prepared based on the following assumption:

assumption that dividends have been reinvested subsequent to the initial investment. Stockholder returns over the indicated period are based on historical data and should not be considered indicative of future stockholder returns.

hhc-20221231_g2.jpg
HHC 2022 FORM 10-K | 34

·

Dividends have been reinvested subsequent

OTHER INFORMATION
Table of Contents
Index to the initial investment.

Financial Statements

PURCHASES OF EQUITY SECURITIES BY THE ISSUER

26


TableThe following sets forth information with respect to the equity compensation plans available to employees and directors of Contents

ITEM 6.  SELECTED FINANCIAL DATA 

The selected historical financial data for the years endedCompany at December 31, 2017, 20162022:

Plan Category(a)
Number of securities to be issued upon exercise of outstanding options, warrants and rights (1)		(b)
Weighted-average exercise price of outstanding options, warrants and rights		(c)
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders (2)2,312,347 $122.73 948,606 
Equity compensation plans not approved by security holders— $— — 
Total2,312,347 $122.73 948,606 
(1)The amounts shown in columns (a) of the above table do not include 353,463 outstanding Common Shares (all of which are restricted and 2015,subject to vesting requirements) that were granted under the Company’s 2020 Equity Incentive Plan and its predecessor, the Amended and Restated 2010 Incentive Plan (2010 Incentive Plan), as of December 31, 2017 and 2016, has been derived from our auditedfurther described in Note 11 - Stock-Based Compensation Plans in the Notes to Consolidated Financial Statements which are includedunder Item 8 of this Form 10-K.
(2)Reflects stock option grants under the Company’s 2020 Equity Incentive Plan and the 2010 Incentive Plan. Column (a) also includes the warrants held by Messrs. Weinreb and Herlitz, as further described in this Annual Report as referencedNote 13 - Warrants in the index on page F-1.

The selected historical financial data for the years ended December 31, 2014 and 2013 and as of December 31, 2015, 2014, and 2013 has been derived from our auditedNotes to Consolidated Financial Statements under Item 8 of this Form 10-K.


In October 2021, the Company’s board of directors (Board) authorized a share repurchase program, pursuant to which the Company was authorized to purchase up to $250.0 million of its common stock through open-market transactions. During the fourth quarter of 2021, the Company repurchased 1,023,284 shares of its common stock, par value $0.01 per share, for those years$96.6 million, or approximately $94.42 per share. During the first quarter of 2022, the Company repurchased an additional 1,579,646 shares of its common stock, for $153.4 million, or approximately $97.10 per share, thereby completing all authorized purchases under the plan.

In March 2022, the Board authorized an additional share repurchase program, pursuant to which are not includedthe Company may, from time to time, purchase up to $250.0 million of its common stock through open-market transactions. The date and time of such repurchases will depend upon market conditions and the program may be suspended or discontinued at any time. During 2022, the Company repurchased 2,704,228 shares of its common stock under this program for approximately $235.0 million at an average price of $86.90 per share. All purchases were funded with cash on hand.

The following sets forth information with respect to repurchases made by the Company of its shares of common stock during the fourth quarter of 2022:
PeriodTotal number of shares purchased (a)Average price paid per shareTotal number of shares purchased as part of publicly announced plans or programsApproximate dollar value of shares that may yet be purchased under the plans or programs
October 1-31, 2022129 $58.44 — $15,009,600 
November 1-30, 20225,893 $66.75 — $15,009,600 
December 1-31, 202211,869 $76.42 — $15,009,600 
Total17,891 $73.11 — 
(a)During the fourth quarter of 2022, 17,891 shares were repurchased related to stock received by the Company for the payment of withholding taxes due on employee share issuances under share-based compensation plans. For additional information, see Note 11 - Stock-Based Compensation Plans in the Notes to Consolidated Financial Statements under Item 8 of this Annual Report.

The selected financial data set forth below are qualified in their entirety by, and should be read in conjunction with, “ItemForm 10-K.


Item 6.  [Reserved]
HHC 2022 FORM 10-K | 35
MANAGEMENT’S DISCUSSION AND ANALYSIS
Table of Contents
Index to Financial Statements
Item 7.  - Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations” and our Consolidated Financial Statements and related notes thereto included in this Annual Report.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

(In thousands, except per share amounts)

    

2017

    

2016

    

2015

    

2014

    

2013

Operating Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

1,100,120

 

$

1,035,005

 

$

797,088

 

$

634,565

 

$

469,418

Depreciation and amortization

 

 

(132,252)

 

 

(95,864)

 

 

(98,997)

 

 

(55,958)

 

 

(33,845)

Operating expenses

 

 

(803,981)

 

 

(728,647)

 

 

(581,156)

 

 

(441,356)

 

 

(353,837)

Other operating income, net (a)

 

 

54,615

 

 

116,268

 

 

1,829

 

 

29,471

 

 

29,478

Interest income (expense), net

 

 

(60,525)

 

 

(64,365)

 

 

(59,158)

 

 

(16,093)

 

 

(6,574)

Loss on redemption of senior notes due 2021

 

 

(46,410)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Warrant liability (loss) gain

 

 

(43,443)

 

 

(24,410)

 

 

58,320

 

 

(60,520)

 

 

(181,987)

Gain on acquisition of joint venture partner's interest

 

 

23,332

 

 

27,088

 

 

 —

 

 

 —

 

 

 —

Increase (reduction) in tax indemnity receivable

 

 

 —

 

 

 —

 

 

 —

 

 

90

 

 

(1,206)

Loss on settlement of tax indemnity receivable

 

 

 —

 

 

 —

 

 

 —

 

 

(74,095)

 

 

 —

Gain (loss) on disposal of operating assets

 

 

3,868

 

 

(1,117)

 

 

29,073

 

 

 —

 

 

 —

Equity in earnings from Real Estate and Other Affiliates

 

 

25,498

 

 

56,818

 

 

3,721

 

 

23,336

 

 

14,428

Benefit (provision) for income taxes

 

 

45,801

 

 

(118,450)

 

 

(24,001)

 

 

(62,960)

 

 

(9,570)

Net income (loss)

 

 

166,623

 

 

202,326

 

 

126,719

 

 

(23,520)

 

 

(73,695)

Net loss (income) attributable to noncontrolling interests

 

 

1,781

 

 

(23)

 

 

 —

 

 

(11)

 

 

(95)

Net income (loss) attributable to common stockholders

 

$

168,404

 

$

202,303

 

$

126,719

 

$

(23,531)

 

$

(73,790)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per share:

 

$

4.07

 

$

5.12

 

$

3.21

 

$

(0.60)

 

$

(1.87)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per share:

 

$

3.91

 

$

4.73

 

$

1.60

 

$

(0.60)

 

$

(1.87)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

(In thousands)

    

2017

    

2016

    

2015

    

2014

    

2013

Cash Flow Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating activities

 

$

319,032

 

$

58,915

 

$

23,930

 

$

(58,315)

 

$

129,332

Investing activities

 

 

(322,681)

 

 

(38,563)

 

 

(575,568)

 

 

(746,456)

 

 

(294,325)

Financing activities

 

 

199,198

 

 

199,857

 

 

436,488

 

 

470,274

 

 

830,744

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31,

(In thousands)

    

2017

    

2016

    

2015

    

2014

    

2013

Balance Sheet Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments in real estate - cost (b)

 

$

5,432,002

 

$

5,056,216

 

$

4,832,443

 

$

4,170,242

 

$

3,085,854

Total assets

 

 

6,729,064

 

 

6,367,382

 

 

5,721,582

 

 

5,105,268

 

 

4,559,013

Total debt

 

 

2,857,945

 

 

2,690,747

 

 

2,443,962

 

 

1,978,807

 

 

1,505,768

Total equity

 

 

3,188,551

 

 

2,571,510

 

 

2,363,889

 

 

2,227,506

 

 

2,245,146

Operations

(a)

2016 includes $140.5 million gain on the sale of 80 South Street and a $35.7 million impairment charge on Park West.

(b)

Amount represents Net investment in real estate excluding accumulated depreciation.

27

Table of Contents

ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our consolidated financial statementsConsolidated Financial Statements and the related notes filed as a part of this Annual Report. This discussion contains forward-looking statements that involve risks, uncertainties, assumptions and other factors, including those described in Part I, “Item 1A.Item 1A. Risk Factors”Factors and elsewhere in this Annual Report. These factors and others not currently known to us could cause our financial results in 20172022 and subsequent fiscal years to differ materially from those expressed in, or implied by, those forward-looking statements. You are cautioned not to place undue reliance on this information which speaks only as of the date of this report. We are not obligated to update this information, whether as a result of new information, future events or otherwise, except as may be required by law.


This section of our Form 10-K discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021. Discussion of 2020 and year-to-year comparisons between 2021 and 2020 that are not included in this Form 10-K can be found in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company’s Annual Report Form 10-K for the year ended December 31, 2021.

All references to numbered Notes are to specific Notes to our Consolidated Financial Statements included in this Annual Report and which descriptions are incorporated into the applicable response by reference. Capitalized terms used, but not defined, in this Management’s Discussion and Analysis of Financial Condition and Results of Operation (“MD&A”)Operations (MD&A) have the same meanings as in such Notes.


IndexPage
37
42
Operating Assets
42
Master Planned Communities
44
Seaport
49
Strategic Developments
52
Corporate Income, Expenses and Other Items
56
57
61
61

HHC 2022 FORM 10-K | 36
MANAGEMENT’S DISCUSSION AND ANALYSIS
OVERVIEW
Table of Contents
Index to Financial Statements
OVERVIEW

General Overview

Please refer to “ItemItem 1. Business”Business for a general descriptiondiscussion of eachour business strategy, competitive strengths and a general description of the assets contained in our threefour business segments and “ItemItem 2. Properties” Properties for details regarding the asset type, size, location and key metrics about our various properties.

The following highlights significant milestones achieved during 2017 for


We are primarily focused on creating shareholder value by increasing our per-share net asset value. Often, the Company and eachnature of our business segments. Eachresults in short-term volatility in our net income due to the timing of MPC land sales, recognition of condominium revenue and operating business pre-opening expenses.

2022 Results During 2022, we maintained positive momentum and successfully navigated challenging market dynamics to deliver solid financial results which met or exceeded our 2022 guidance expectations in every segment. This strong performance is a testament to our premier communities and best-in-class assets, further highlighting the strength of our unique business model.

MPCs delivered exceptional results despite significant reductions in new home sales across our communities. Excluding reduced equity earnings, primarily from The Summit which had limited remaining inventory due to its past sales success, MPC earnings before taxes (EBT) increased 11% year over year, driven by solid land sales, high residential prices per acre and increased builder price participation revenue.

Operating Assets delivered 9% year-over-year net operating income (NOI) growth—excluding dispositions—even considering market and recessionary challenges throughout the year. This improvement was led by multi-family, where new developments and strong rent growth contributed to significant increases in NOI. In office, we made considerable progress with the lease-up of our towers, executing approximately 510,000 square feet of new or expanded leases during the year which will provide meaningful NOI growth in the coming years.

Ward Village had another strong year, closing on more than 600 condo units and contracting to sell nearly 1,000 condo units in future towers. During the year, we completed construction on Kō‘ula, made significant progress on the construction of Victoria Place, and commenced construction on The Park Ward Village. We also launched presales at Ulana Ward Village, a designated workforce housing tower, and at Kalae, which has been met with exceptional demand.

The Seaport continued to improve throughout 2022 with a nearly 50% year-over-year increase in foot traffic which contributed to improved demand at our managed restaurants and our most successful summer concert series to date. In addition, the grand opening of the Tin Building by Jean-Georges in the third quarter of 2022 was met with strong demand and positive culinary reviews.

2023 Outlook Proceeding into 2023, we maintain a positive long-term outlook for our businesses, although ongoing market uncertainty is expected to contribute to reduced residential land sales and relatively flat Operating Assets NOI in 2023. Despite these itemsnear-term challenges, HHC is more fully described hereinafter (all itemswell-positioned for growth in the years ahead with its substantial landbank in highly desirable master planned communities, exceptional portfolio of assets and significant pipeline of future commercial development. With the significant financing activity completed in 2022 and early 2023, we are pre-tax unless otherwise noted).

Throughoutwell positioned to advance new developments in our communities.


MPC EBT is projected to be comparable to earnings generated on average during 2017 and 2018, prior to a period of outsized land and home sales in Summerlin, Bridgeland, and The Woodlands Hills during the COVID-19 pandemic. Since mid-2022, a slowing housing market, which has been largely driven by a rise in mortgage rates and shrinking home affordability, has softened new home sales and homebuilder demand for new acreage in the near-term. As a result, we demonstrated strong operating results realizing $1.1 billion in total revenues, an increase of $65.1 millionexpect 2023 MPC EBT to decline as compared to 20162022.

Operating Assets NOI is projected to benefit from multi-family rent growth and new developments in Bridgeland, Downtown Columbia, and Summerlin encompassing nearly 1,400 units. The office portfolio is expected to benefit from leasing momentum experienced throughout 2022, but free rent periods on many of the new leases and the impact of tenant vacancies during 2022 will likely result in a modest year-over-year decline in office NOI. Overall, excluding the impact of divested retail assets in the prior year, Operating Assets NOI is expected to be relatively flat compared to 2022.

Projected revenue from condominium closings in 2023 is expected to decrease, as our next major condominium project, Victoria Place, is not scheduled to be completed until early 2024. Projected condominium sales for 2023 will be driven by increases in our Operating Assets and MPC segments, offset by a modest decline in our Strategic Developments segment. The decrease in revenues in our Strategic Developments segment was due to a decrease in condominium rights and unit sales recognized on a percentage of completion basis, as twothe closing of our residential towers are substantially sold. Despite higher revenues, the decline in operating income was largely the result of a  one-time gain on sales of properties realized in 2016 relating to the opportunistic sale of 80 South Street Assemblageremaining completed units at ‘A‘ali‘i and is not indicative of the underlying business results within our operating segments.

Capital and Financing Activities

In 2017, we were also able to maintain our strong balance sheet, financial flexibility and liquidity to fund future growth.Kō‘ula. As of December 31, 2017, we have $861.12022, ‘A‘ali‘i was 96% sold and Kō‘ula was 97% sold.


HHC 2022 FORM 10-K | 37
MANAGEMENT’S DISCUSSION AND ANALYSIS
OVERVIEW
Table of Contents
Index to Financial Statements
 2022 Highlights

Total Company
–Net income attributable to common stockholders increased to $184.5 million, or $3.65 per diluted share, for the year ended December 31, 2022, compared to income of $56.1 million, or $1.03 per diluted share, for the year ended December 31, 2021.
–We continue to maintain a strong liquidity position with $626.7 million of cash and cash equivalents and basedavailable capacity of $200 million on extended maturity dates, we have only $78.2 million of debt maturing during 2018. In March of 2017, we issued $800 million of 5.375% senior notes due March 15, 2025 (the “2025 Notes”), using the sales proceeds to redeem all $750 million of the 6.875% senior notes, to pay related transaction fees and expenses, and to repay construction financings and fund ongoing development projects and general corporate needs. This refinancing transaction added meaningful duration to our debt maturity profile, reduced our current coupon by 150 basis points and maintained our current liquidity profile all at a positive net present value basis. In June of 2017, we opportunistically issued an additional $200.0 million of the 2025Secured Bridgeland Notes at a premium to par of 102.25%, further increasing our liquidity profile.

In addition, our liquidity was further enhanced during the year by obtaining approximately $127.6 million in construction financings, obtaining $49.2 million in non-recourse financings, a $30.0 million increase in The Woodlands Master Credit Facility, the receipt of our first reimbursement of $1.6 million from the first tranche of $38.5 million in Tax Increment Financed bonds issued by Howard County, Maryland (with another $14.4 million submitted for reimbursement as of December 31, 2017, to offset our development costs),2022, with limited near-term debt maturities.

–During 2022, we completed the sale of three retail properties, Outlet Collection at Riverwalk, Lake Woodlands Crossing and the receipt of $52.0 million from our CEO and President as consideration for the issuance of warrants to these executives. Finally, we closed on the sales of six non-core assets for total proceeds of $88.6 million, resulting in a net gain of $51.4 million included in Gains on sales of properties from our Strategic Developments segment and $3.9 million in Gains on sales of operating properties from our Operating Assets segment. These sales have generated $88.5 million in taxable losses.

On February 23, 2018, we repurchased 475,920 shares of our common stock, par value $0.01 per share, in a private transaction with an unaffiliated entity at a purchase price of $120.33 per share, or approximately $57,267,453 in the aggregate. The repurchase transaction was consummated on February 21, 2018, and was funded with cash on hand.

28

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Master Planned Communities

In 2017, we increased our MPC segment earnings before tax to $190.4 million, an increase of 6.1% as compared to prior year, bolstered by strong performance in Bridgeland and SummerlinCreekside Village Green, as well as our interest in the opening110 North Wacker office property, for total net proceeds of $215.9 million.


Operating Assets
–Operating Assets NOI totaled $225.8 million in 2022, a $7.1 million increase compared to $218.7 million in the prior year. Excluding the impact of dispositions in 2021 and initial land sales at2022, Operating Assets NOI increased $13.7 million compared to the prior-year period.
–Multi-family NOI increased $12.7 million primarily due to rent growth and strong lease-up of our newest MPC,new developments in The Woodlands Hills. In total during 2017, we sold 349.6 acres of residential landand Downtown Columbia, including Creekside Park The Grove, Two Lakes Edge, The Lane at a price per acre increase of 1.3%, 26.1%Waterway and 12.1%Juniper Apartments.
–Office NOI increased $1.4 million, primarily related to the continued lease-up at Bridgeland, Summerlin and The Woodlands, respectively.These increases, along with the sale of 35.7 acres of commercial land, helped drive an increase in total revenue in our MPC segment by $46.2 million. In addition, we recognized our $23.2 million share of earnings from The Summit, our luxury golf course joint venture development within Summerlin, and received a $10.0 million cash distribution generated by $55.9 million in land sales at the joint venture.

Operating Assets

In our Operating Assets segment, we increased net operating income (“NOI”), including our share of NOI from equity investments and excluding properties sold or in redevelopment, by $18.0 million, or 13.0%, to $157.0 million in 2017 compared to $139.0 million in 2016. This increase was driven by strong performance9950 Woodloch Forest and the stabilizationexpiration of assets across all property types,rent abatements at 9950 Woodloch Forest, 6100 Merriweather and 8770 New Trails. These increases were partially offset by NOI reductions related to the wind down of operating activities at both 110 North Wacker and certain areas of Ward Village, where we will execute on development in the coming months as we pursue future value creation opportunities. We experienced particularly strong NOI growth in our office and hospitality assets for the years ended December 31, 2017 and 2016 with an increase in NOI of $7.3 million and $6.9 million, respectively.

Also during 2017, we acquired our joint venture partner’s 50.0% interest in Constellation for $8.0 million in cash and 50% of the joint venture’s liabilities, for a total of $16.0 million, resulting in a gain of $17.8 million on step-up to fair value of net assets acquired.  We also acquired our joint venture partner’s 50.0% interest in the Las Vegas 51s minor league baseball team, which upon completion of a new stadium will serve as an amenity for our Summerlin MPC, for $16.4 million, resulting in a gain of $5.4 million on step-up to fair value of the net assets acquired.

Strategic Developments

Our Strategic Developments segment experienced another strong year of execution with respect to both the sale of condominium units in Ward Village as well as development activities throughout the portfolio, with two new condominium towers under construction, two that have welcomed residents and three projects completeddecreases at The Woodlands and Columbia. We reported revenuesColumbia properties due to expiration of $464.3leases. In 2022, the Company executed 510,000 square feet of new or expanded office leases including 253,000 square feet in The Woodlands, 155,000 square feet in Downtown Columbia and 102,000 square feet in Summerlin.

–NOI related to our Retail and Other properties remained relatively flat in 2022 compared to the prior year.

MPC
–MPC EBT totaled $283.0 million from condominium rightsin 2022, a $33.6 million decrease compared to $316.6 million in the prior year.
–The decrease in EBT was primarily due to lower equity earnings of $60.8 million, primarily related to limited supply of land inventory at The Summit, partially offset by higher builder price participation, primarily at Summerlin. Excluding the impact of the decrease in equity earnings, MPC EBT increased $27.2 million compared to the prior-year period.
–The average price per acre of residential land sold increased 32% to $768,000 per acre, a full-year record for HHC.
–Builder price participation totaled $71.8 million in 2022, a $26.6 million increase compared to $45.1 million in the prior year.
–During 2022, JDM Member exercised options to repurchase a 12.0% ownership interest in Teravalis, resulting in an 88.0% member equity interest for the Company.

Seaport
–Seaport generated negative NOI of $9.8 million, representing a $7.8 million improvement compared to the prior year, primarily as a result of an earlier launch of the summer concert series and unit salesadditional concerts scheduled in 2022 compared to 2021, increased demand at our four residentialmanaged restaurants, increased private event activity and rental revenue related to the Tin Building landlord operations. Seaport NOI excludes equity losses of $36.2 million in 2022, related to pre-opening costs and initial operating losses for the Tin Building by Jean-Georges managed business.

Strategic Developments
–Strategic Developments EBT totaled $190.2 million in 2022, a $106.5 million increase compared to $83.8 million in the prior year.
–The increase in EBT was primarily due to an increase in net condominium towers available for salesales of $74.4 million driven by timing and mix of condominium closings.
–We closed on 607 units during the year ended December 31, 2022, including 549 units at Kō‘ula, which was completed in the third quarter of 2022, 56 units at ‘A‘ali‘i and the final 2 units at Waiea.
–During 2022, we achieved 100% presold status at Victoria Place and 100% sold status at Waiea.
–The Park Ward Village, as compared to $485.6 millionour eighth condominium project at Ward Village, began public presales in 2016July 2021 and $305.3 millionbegan construction in 2015.December 2022. As of December 31, 20172022, we have closed onentered into contracts for 501 units, representing 91.9% of total units.
HHC 2022 FORM 10-K | 38
MANAGEMENT’S DISCUSSION AND ANALYSIS
OVERVIEW
Table of Contents
Index to Financial Statements
–Ulana Ward Village, our ninth condominium project, was announced in 2021, with all units designated as workforce housing units and are being offered to local residents who meet certain maximum income and net worth requirements. As of December 31, 2022, we have entered into contracts for 676 units, representing 97.1% of total units. Construction began at Ulana Ward Village in January 2023.
–Kalae, our tenth condominium project, began public presales in September 2022 and as of December 31, 2022, we have entered into contracts for 240 units, representing 72.9% of total units.
–We placed the salesfollowing assets in service upon substantial completion of construction in 2022: (i) Memorial Hermann Medical Office Building, a total of 464 units to new residents. With the opening of both Waiea and Anaha to new residents and the associated proceeds generated from the closings of those units, we repaid the $195.3 million outstanding balance on the Waiea and Anaha construction loan.  

Also within our Strategic Development segment during 2017, we completed construction on: (i) two self-storage facilities in The Woodlands totaling 1,438 units; (ii) One Merriweather, a 202,603 square foot, Class Amedical office building in Downtown Columbia; and (iii) Two Merriweather, a 124,635 square foot, Class A office building in Downtown Columbia. We commenced construction on six projects including: (i) Aristocrat, a 12-acre build-to-suit project including two 90,000 square foot  office buildings, 100% pre-leased to Aristocrat Technologies; (ii) Two Summerlin, a 145,000 square foot Class A office building; (iii) 100 Fellowship Drive, a three-story, 203,000 rentable square foot medical building in The Woodlands which is 100% pre-leased; (iv) Creekside Park Apartments, a 292-unit apartment complexproperty in The Woodlands; (ii) 1700 Pavilion, an office property in Summerlin; (iii) Marlow, a multi-family property in Columbia; (iv) Starling at Bridgeland, a multi-family property in Bridgeland; (v) Lake Woodlands Crossing Retail center, containing approximately 60,300 rentable retail square feetCreekside Park Medical Plaza, a medical office property in The Woodlands; and (vi) 33 Peck Slip,Kō‘ula Retail, a retail property in Ward Village. These assets placed in service represent 830 multi-family units and 388,000 square feet of office and retail space.

–We began construction on the following assets in 2022: (i) South Lake Medical Office Building, a medical office property in Columbia; (ii) The Park Ward Village, our joint ventureeighth condominium project for redevelopmentin Ward Village; (iii) Summerlin South Office, an office property in Summerlin; and (iv) Wingspan, a single-family rental community in Bridgeland. These assets under construction represent 263 single-family units, 545 condominium units and 259,800 square feet of a 66-room hotel servingoffice and retail space.

Corporate
–Net expenses related to Corporate income, expenses and other items remained relatively flat compared to the prior-year period as the nonrecurring loss on extinguishment of debt in 2021 and lower net interest expense was offset by an amenityincrease in income tax expense.

Capital and Financing Activities
–In 2022, our financing activity included new borrowings of $899.2 million (excluding undrawn amounts on new construction loans), draws on existing mortgages of $336.7 million, and repayments on mortgages and credit facility of $1.1 billion. For additional information refer to Note 7 - Mortgages, Notes and Loans Payable, Net in the Seaport District. Finally,Notes to Consolidated Financial Statements under Item 8 of this Form 10-K.
–In the first quarter of 2022, the Company repurchased $153.4 million of its common stock, completing all authorized share repurchases under a $250.0 million share repurchase program approved in 2021. In March 2022, the Board authorized an additional $250.0 million of share repurchases. Under this program, the Company has repurchased approximately $235.0 million as of December 31, 2022.

HHC 2022 FORM 10-K | 39
MANAGEMENT’S DISCUSSION AND ANALYSIS
OVERVIEW
Table of Contents
Index to Financial Statements
Earnings Before Taxes

In addition to the required presentations using accounting principles generally accepted in the United States (GAAP), we announceduse certain non-GAAP performance measures, as we believe these measures improve the understanding of our intentions to develop a new ballpark in downtown Summerlin for the Las Vegas 51s minor league baseball team as well as a naming rights agreement with the Las Vegas Conventionoperational results and Visitor’s Authority which will pay us $4 million annually for a 20-year term. We broke ground on the ballpark in February 2018.

Earnings Before Taxes

We use a numbermake comparisons of operating measures for assessing operating performance of properties within our segments, some of which may not be commonresults among all threepeer companies more meaningful. Management continually evaluates the usefulness, relevance, limitations and calculation of our segments. We believe that investors may find somereported non-GAAP performance measures to determine how best to provide relevant information to the public, and thus such reported measures could change.


Because our four segments, Operating Assets, MPC, Seaport and Strategic Developments, are managed separately, we use different operating measures more useful than others when separately evaluating each segment. Oneto assess operating results and allocate resources among them. The one common operating measure used to assess operating results for our business segments is EBT. We believe EBT provides useful information about the operating performance of each segment and

29

Table of Contents

its properties as further discussed below. EBT may be calculated differently by other companies in our industry, limiting its usefulness as a comparative measure.

EBT, as it relates to each business segment, representsincludes the revenues lessand expenses of each segment, including interest income, interest expense, depreciation and amortization and equity in earnings of real estate and other affiliates.as shown below. EBT excludes corporate expenses and other items that are not allocable to the segments. See discussion herein at Corporate income, expenses and other items for further details. We present EBT for each segment because we use these measures,this measure, among others, internally to assess the core operating performance of our assets. We also present these measures because we believe certain investors use them as a measure of our Company’s historical operating performance and our ability to service existing debt and incur new debt. We believe that the inclusion of certain adjustments to net income to calculate EBT is appropriate to provide additional information to investors. A reconciliation of EBT to consolidated net income as computed in accordance with GAAP has been presented in Note 17 – Segments.  


EBT should not be considered as an alternative to GAAP net income attributable to common stockholders or GAAP net income, as it has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Some of the limitations of EBT are that it does not include the following in our calculations:

–cash expenditures, or future requirements for capital expenditures or contractual commitments
–corporate general and administrative expenses
–interest expense on our corporate debt
–income taxes that we may be required to pay
–any cash requirements for replacement of fully depreciated or amortized assets
–limitations on, or costs related to, the transfer of earnings from our unconsolidated ventures to us

A reconciliation between EBT and Net income is presented below:
thousandsOperating Assets Segment (a)MPC SegmentSeaport SegmentStrategic Developments SegmentTotal
Year ended December 31, 2022
Total revenues$431,834 $408,365 $88,468 $679,763 $1,608,430 
Total operating expenses(194,496)(173,905)(104,393)(504,036)(976,830)
Segment operating income (loss)237,338 234,460 (15,925)175,727 631,600 
Depreciation and amortization(154,626)(394)(36,338)(5,319)(196,677)
Interest income (expense), net(89,959)50,305 3,902 17,073 (18,679)
Other income (loss), net(1,140)23 245 1,799 927 
Equity in earnings (losses) from unconsolidated ventures22,263 (1,407)(36,273)868 (14,549)
Gain (loss) on sale or disposal of real estate and other assets, net29,588 — — 90 29,678 
Gain (loss) on extinguishment of debt(2,230)— — — (2,230)
Segment EBT$41,234 $282,987 $(84,389)$190,238 $430,070 
Corporate income, expenses and other items(245,434)
Net income (loss)184,636 
Net (income) loss attributable to noncontrolling interests(103)
Net income (loss) attributable to common stockholders$184,533 
HHC 2022 FORM 10-K | 40

·

cash expenditures, or future requirements for capital expenditures or contractual commitments;

MANAGEMENT’S DISCUSSION AND ANALYSIS
OVERVIEW
Table of Contents
Index to Financial Statements

·

corporate general and administrative expenses;

thousandsOperating Assets Segment (a)MPC SegmentSeaport SegmentStrategic Developments SegmentTotal
Year Ended December 31, 2021
Total revenues$442,698 $409,746 $55,008 $520,109 $1,427,561 
Total operating expenses(209,020)(193,851)(77,198)(436,698)(916,767)
Segment operating income (loss)233,678 215,895 (22,190)83,411 510,794 
Depreciation and amortization(163,031)(366)(30,867)(6,512)(200,776)
Interest income (expense), net(75,391)42,683 357 3,701 (28,650)
Other income (loss), net(10,746)— (3,730)2,536 (11,940)
Equity in earnings (losses) from unconsolidated ventures(67,042)59,399 (1,988)(221)(9,852)
Gain (loss) on sale or disposal of real estate and other assets, net39,168 — — 13,911 53,079 
Gain (loss) on extinguishment of debt(1,926)(1,004)— — (2,930)
Provision for impairment— — — (13,068)(13,068)
Segment EBT$(45,290)$316,607 $(58,418)$83,758 $296,657 
Corporate income, expenses and other items(247,733)
Net income (loss)48,924 
Net (income) loss attributable to noncontrolling interests7,176 
Net income (loss) attributable to common stockholders$56,100 

·

interest expense on our corporate debt;

·

income taxes that we may be required to pay;

·

any cash requirements for replacement of fully depreciated or amortized assets; and

·

limitations on, or costs related to, the transfer of earnings from our Real Estate and Other Affiliates to us.

Results(a)Total revenues includes hospitality revenues of Operations

Our revenues are primarily derived from the sale of superpads and individual lots at our master planned communities to homebuilders, from tenants and customers at our commercial and residential operating properties, overage rent and recoveries of operating expenses, and from the sale of condominium units.

The following table reflects our results of operations for the years ended December 31, 2017, 2016 and 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31, 

 

2017-2016

 

2016-2015

(In thousands, except per share amounts)

   

2017

   

2016

   

2015

   

Change

   

Change

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MPC segment revenues

 

$

299,543

 

$

253,304

 

$

229,865

 

$

46,239

 

$

23,439

Operating Assets segment revenues

 

 

327,555

 

 

295,165

 

 

259,306

 

 

32,390

 

 

35,859

Strategic Developments segment revenues

 

 

473,022

 

 

486,536

 

 

307,917

 

 

(13,514)

 

 

178,619

Total revenues

 

$

1,100,120

 

$

1,035,005

 

$

797,088

 

$

65,115

 

$

237,917

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MPC segment EBT

 

$

190,351

 

$

179,481

 

$

114,366

 

$

10,870

 

$

65,115

Operating Assets segment EBT

 

 

(28,664)

 

 

(22,985)

 

 

(9,646)

 

 

(5,679)

 

 

(13,339)

Strategic Developments segment EBT

 

 

169,041

 

 

302,022

 

 

97,580

 

 

(132,981)

 

 

204,442

Corporate and other items

 

 

(209,906)

 

 

(137,742)

 

 

(51,580)

 

 

(72,164)

 

 

(86,162)

Income before taxes

 

 

120,822

 

 

320,776

 

 

150,720

 

 

(199,954)

 

 

170,056

Benefit (provision) for income taxes

 

 

45,801

 

 

(118,450)

 

 

(24,001)

 

 

164,251

 

 

(94,449)

Net income (loss)

 

 

166,623

 

 

202,326

 

 

126,719

 

 

(35,703)

 

 

75,607

Net loss (income) attributable to noncontrolling interests

 

 

1,781

 

 

(23)

 

 

 —

 

 

1,804

 

 

(23)

Net income attributable to common stockholders

 

$

168,404

 

$

202,303

 

$

126,719

 

$

(33,899)

 

$

75,584

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted income per share

 

$

3.91

 

$

4.73

 

$

1.60

 

$

(0.82)

 

$

3.13

30

Table of Contents

Total revenues$35.6 million for the year ended December 31, 2017 increased compared to the same period in 2016 primarily due to higher revenues in our MPC and Operating Assets segments. MPC segment revenue increased due to higher land sales at Bridgeland, Summerlin, Maryland, and The Woodlands Hills as well as a two utility easement sales at Bridgeland totaling $10.4 million. Operating Assets segment revenue increased due to increases at our office, multi-family and2021. Total operating expenses includes hospitality properties, as well as the recent acquisition and consolidationoperating costs of our joint venture partners’ interests in the Las Vegas 51s baseball team and Millennium Six Pines apartments. These increases are partially offset by a decline in revenues at 110 North Wacker and Landmark Mall, both now closed in preparation for redevelopment. The Strategic Developments segment revenue decrease is due to less revenue recognized on a percentage of completion basis at Waiea, which was open to residents at the end of 2016, partially offset by increased revenue at the Anaha, Ae`o and Ke Kilohana condominium projects.

Total revenues$30.5 million for the year ended December 31, 2016 increased compared to2021. In September 2021, the year ended December 31, 2015 primarily due to higher revenues in our Strategic Developments segment. Strategic Developments segment revenue increased due to recognitionCompany completed the sale of revenue related to sales at our Waiea and Anaha condominium projects. Operating Assets segment revenue increased due to the elimination of co-tenancy allowancesits three hospitality properties.

HHC 2022 FORM 10-K | 41
MANAGEMENT’S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Table of Contents
Index to Financial Statements
RESULTS OF OPERATIONS

See sections below for the majority of tenants at Downtown Summerlin, recognition of a full year of revenue for various office, multi-family and hospitality properties which opened in 2015 and 2016, and the purchasedetailed discussion of our partner’s interest in Millennium Six Pines Apartments (formerly known as Millennium Woodlands Phase II, LLC). The MPC segment revenue increase is due to increased residential land sales, partially offset by decreased commercial land sales in MPCs in 2016 as compared to 2015.

Net expenses related to Corporate and other items increased for the year ended December 31, 2017 as compared to the same period in 2016 primarily due to a $19.0 million increase in the Warrant liability loss prior to the settlement of these liabilities and a Loss on redemption of senior notes due 2021 of $46.4 million. Please refer to the Corporate and other items section elsewhere in this MD&A for additional discussion regarding the accounts comprising this line item.

The decrease in the Benefit (provision) for income taxes for the year ended December 31, 2017 compared to 2016 is due to a decrease of $200.0 million in income before tax and a 2017 tax benefit of $101.7 million related to a reduction in deferred tax liabilities resulting from legislation that was enacted on December 22, 2017. The increase in the provision for income taxes for the year ended December 31, 2016 compared to 2015 is attributable to an increase of $208.0 million in operating income, decrease in valuation allowance, and other permanent items.

31

Table of Contents

We have significant permanent differences, primarily from warrant liability gains and losses, and changes in valuation allowances that cause our effective tax rate to deviate greatly from statutory rates. The effective tax rate based upon actual operating results was (37.4%)by segment.


Operating Assets

Segment EBTThe following table presents segment EBT for the year ended December 31, 2017 compared to 36.9% for the year ended December 31, 2016 and 15.9% for the year ended December 31, 2015. The change in the effective tax rate from 2017 to 2016 was primarily attributable to the Tax Act reducing the corporate tax rate from 35.0% to 21.0%, resulting in a one-time transitional tax benefit of $101.7 million. Other changes in both periods were changes in the warrant liability, valuation allowance related to our deferred tax assets, as well as other items which are permanent differences for tax purposes. If changes in the federal tax rate in new tax legislation, warrant liability, valuation allowance, unrecognized tax benefits and other material discrete adjustments to deferred tax liabilities were excluded from the effective tax rate computation, the effective tax rates would have been 36.4%, 36.3% and 31.2%Operating Assets for the years ended December 31, 2017, 2016 and 2015, respectively.

The decrease in Net income (loss) attributable to common stockholders for the year ended December 31, 201731:

Operating Assets Segment EBT2022-2021
thousands20222021$ Change
Rental revenue$379,693 $360,830 $18,863 
Other land, rental and property revenues52,141 81,868 (29,727)
Total revenues431,834 442,698 (10,864)
Operating costs(141,678)(158,994)17,316 
Rental property real estate taxes(52,096)(50,661)(1,435)
(Provision for) recovery of doubtful accounts(722)635 (1,357)
Total operating expenses(194,496)(209,020)14,524 
Segment operating income (loss)237,338 233,678 3,660 
Depreciation and amortization(154,626)(163,031)8,405 
Interest income (expense), net(89,959)(75,391)(14,568)
Other income (loss), net(1,140)(10,746)9,606 
Equity in earnings (losses) from unconsolidated ventures22,263 (67,042)89,305 
Gain (loss) on sale or disposal of real estate and other assets, net29,588 39,168 (9,580)
Gain (loss) on extinguishment of debt(2,230)(1,926)(304)
Segment EBT$41,234 $(45,290)$86,524 

Operating Assets segment EBT increased $86.5 million compared to the year ended December 31, 2016 isprior-year period primarily due to a decline in gains on salesthe following:
–Equity earnings increased $89.3 million primarily driven by the impact of properties resulting from the opportunistic $140.5 million gain on sale of 80 South Street Assemblage110 North Wacker in 2016,the first quarter of 2022. This increase is due to losses incurred at 110 North Wacker in 2021 during the lease-up period that were not recurring in 2022, as well as the recognition of income upon the sale in 2022, primarily due to the release of our share of accumulated other comprehensive income related to 110 North Wacker’s derivative instruments.
–Total revenues, net of operating costs increased warrant liabilities loss$6.5 million due to an increase of $11.3 million primarily driven by the stabilization of our newer multi-family properties in The Woodlands and decreased equity in earnings from real estate and other affiliates in 2017,Columbia, partially offset by a $164.3decrease of $4.8 million decreaserelated to the sale of our hospitality properties in the third quarter of 2021.
–Other loss decreased $9.6 million due to a nonrecurring $10.0 million loss incurred in February 2021 on the settlement of the rate-lock agreement upon repayment of our tax provision,outstanding loans for 1201 Lake Robbins and The Woodlands Warehouse.
–Depreciation and amortization decreased $7.1 million and interest expense decreased $3.9 million as a result of the sale of our hospitality properties in the third quarter of 2021.

These increases to EBT were partially offset by the following:
–Interest expense increased $18.5 million, excluding the impact of the sale of the hospitality assets referenced above, primarily due to a $101.7financing activity for our operating assets in 2022, as well as increased interest costs associated with variable-rate debt.
–Gain on asset sales decreased $9.6 million benefit provided byas the Tax Act.

The increasecombined gain on the sales of Creekside Park Village, Lake Woodlands Crossing and the Outlet Collection at Riverwalk in Net income (loss) attributable to common stockholders for2022, was lower than the year ended December 31, 2016 compared to the year ended December 31, 2015 is primarily due to significant growth in Strategic Developments EBT from higher condominium unit sales due to construction progress triggering the recognition of revenue under the percentage of completion method and a gain of $140.5 million on the sale of the 80 South Street Assemblage. The increasehospitality properties in 2021.


HHC 2022 FORM 10-K | 42
MANAGEMENT’S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Table of Contents
Index to Financial Statements
Net Operating Income We believe that NOI is alsoa useful supplemental measure of the performance of our Operating Assets and Seaport segments because it provides a performance measure that, when compared year over year, reflects the revenues and expenses directly associated with owning and operating real estate properties and the impact on operations from trends in rental and occupancy rates and operating costs as variances between years in NOI typically result from changes in rental rates, occupancy, tenant mix and operating expenses. We define NOI as operating revenues (rental income, tenant recoveries and other revenue) less operating expenses (real estate taxes, repairs and maintenance, marketing and other property expenses). NOI excludes straight-line rents and amortization of tenant incentives, net; interest expense, net; ground rent amortization; demolition costs; other income (loss); amortization; depreciation; development-related marketing costs; gain on sale or disposal of real estate and other assets, net; provision for impairment and equity in earnings from unconsolidated ventures. We use NOI to evaluate our operating performance on a property-by-property basis because NOI allows us to evaluate the impact that property-specific factors such as lease structure, lease rates and tenant base have on our operating results, gross margins and investment returns.

Projected annual stabilized NOI is initially projected prior to the development of the asset based on market assumptions and is revised over the life of the asset as market conditions evolve. Adjustments to an asset’s stabilized NOI are made when changes to the asset's long-term performance are thought to be more than likely and permanent.

Although we believe that NOI provides useful information to investors about the performance of our Operating Assets and Seaport segments, due to higher MPCthe exclusions noted above, NOI should only be used as an additional measure of the financial performance of such assets and not as an alternative to GAAP net income. A reconciliation of Operating Assets segment EBT.EBT to Operating Assets NOI is presented in the table below. Refer to the Seaport section for a reconciliation of Seaport segment EBT to Seaport NOI.

Operating Assets NOI2022-2021
thousands20222021$ Change
Total Operating Assets segment EBT$41,234 $(45,290)$86,524 
Add back:
Depreciation and amortization154,626 163,031 (8,405)
Interest (income) expense, net89,959 75,391 14,568 
Equity in (earnings) losses from unconsolidated ventures(22,263)67,042 (89,305)
(Gain) loss on sale or disposal of real estate and other assets, net(29,588)(39,168)9,580 
(Gain) loss on extinguishment of debt2,230 1,926 304 
Impact of straight-line rent(11,241)(14,715)3,474 
Other827 10,449 (9,622)
Operating Assets NOI$225,784 $218,666 $7,118 

The below table presents Operating Assets NOI by property type:
Operating Assets NOI by Property Type2022-2021
thousands20222021$ Change
Office$111,210 $109,838 $1,372 
Retail51,525 52,448 (923)
Multi-family45,564 32,895 12,669 
Other14,067 13,492 575 
Dispositions3,418 9,993 (6,575)
Operating Assets NOI$225,784 $218,666 $7,118 

Operating Assets NOI increased $7.1 million compared to the prior-year period primarily due to the following:
–Multi-family NOI increased $12.7 million driven by rent growth and strong lease-up of our new developments in The Woodlands and Downtown Columbia, including Creekside Park The Grove, Two Lakes Edge, The Lane at Waterway and Juniper Apartments.
–Office NOI increased $1.4 million primarily due to the continued lease-up at 9950 Woodloch Forest and the expiration of rent abatements at 9950 Woodloch Forest, 6100 Merriweather and 8770 New Trails. These increases arewere partially offset by decreases at The Woodlands and Columbia properties due to expiration of leases.
–These increases were partially offset by a provision for impairment and loss on disposal$6.6 million decrease due to the sale of our Park West propertyhospitality properties in our Operating AssetsThe Woodlands in the third quarter of 2021 and the Outlet Collection at Riverwalk in the second quarter of 2022.

HHC 2022 FORM 10-K | 43
MANAGEMENT’S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Table of Contents
Index to Financial Statements
Master Planned Communities

Segment EBTThe following table presents segment EBT a warrant liability loss and an increased provision for income taxes.

Please refer to the individual segment operations sections that follow for explanations of the results of each of our segmentsMPC for the years ended December 31, 2017, 2016 and 2015.

31: 

32

MPC Segment EBT2022-2021
thousands20222021$ Change
Master Planned Community land sales (a)$316,065 $346,217 $(30,152)
Other land, rental and property revenues20,539 18,391 2,148 
Builder price participation (b)71,761 45,138 26,623 
Total revenues408,365 409,746 (1,381)
Master Planned Communities cost of sales(119,466)(153,630)34,164 
Operating costs(54,439)(40,221)(14,218)
Total operating expenses(173,905)(193,851)19,946 
Segment operating income (loss)234,460 215,895 18,565 
Depreciation and amortization(394)(366)(28)
Interest income (expense), net50,305 42,683 7,622 
Other income (loss), net23 — 23 
Equity in earnings (losses) from unconsolidated ventures(1,407)59,399 (60,806)
Gain (loss) on extinguishment of debt— (1,004)1,004 
Segment EBT$282,987 $316,607 $(33,620)

Table of Contents

Master Planned Communities

Master Planned Communities Revenues and Expenses

For the Year Ended December 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bridgeland

 

Maryland Communities

 

Summerlin

 

The Woodlands

 

The Woodlands Hills

 

Total MPC

($ in thousands, except %)

 

2017

 

2016

 

2015

 

2017

 

2016

 

2015

 

2017

 

2016

 

2015

 

2017

 

2016

 

2015

 

2017

 

2016

 

2015

 

2017

 

2016

 

2015

Land sales (a)

 

$

39,529

 

$

24,254

 

$

20,385

 

$

10,800

 

 

$

 —

 

 

$

 —

 

 

$

156,617

 

$

148,699

 

$

123,171

 

$

40,367

 

$

42,365

 

$

43,843

 

$

1,282

 

$

 —

 

$

 —

 

$

248,595

 

$

215,318

 

$

187,399

Builder price participation (b)

 

 

398

 

 

754

 

 

1,193

 

 

 —

 

 

 

 —

 

 

 

 —

 

 

 

21,731

 

 

19,083

 

 

21,465

 

 

706

 

 

1,549

 

 

4,188

 

 

 —

 

 

 —

 

 

 —

 

 

22,835

 

 

21,386

 

 

26,846

Minimum rents

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 

 —

 

 

 

 —

 

 

 

(8)

 

 

384

 

 

797

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(8)

 

 

384

 

 

797

Other land revenues (c)

 

 

10,952

 

 

314

 

 

345

 

 

445

 

 

 

418

 

 

 

468

 

 

 

10,124

 

 

9,669

 

 

7,907

 

 

6,572

 

 

5,778

 

 

6,058

 

 

31

 

 

13

 

 

 —

 

 

28,124

 

 

16,192

 

 

14,778

Other rental and property revenue

 

 

 —

 

 

 —

 

 

 

 

 

 —

 

 

 

 —

 

 

 

 —

 

 

 

(3)

 

 

24

 

 

45

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(3)

 

 

24

 

 

45

Total revenues

 

 

50,879

 

 

25,322

 

 

21,923

 

 

11,245

 

 

 

418

 

 

 

468

 

 

 

188,461

 

 

177,859

 

 

153,385

 

 

47,645

 

 

49,692

 

 

54,089

 

 

1,313

 

 

13

 

 

 —

 

 

299,543

 

 

253,304

 

 

229,865

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales - land

 

 

12,792

 

 

7,672

 

 

6,763

 

 

5,839

 

 

 

 —

 

 

 

 —

 

 

 

83,343

 

 

68,436

 

 

65,414

 

 

18,470

 

 

19,619

 

 

15,888

 

 

672

 

 

 —

 

 

 —

 

 

121,116

 

 

95,727

 

 

88,065

Land sales operations

 

 

7,463

 

 

6,507

 

 

5,945

 

 

1,692

 

 

 

1,317

 

 

 

1,423

 

 

 

9,715

 

 

11,226

 

 

14,943

 

 

19,080

 

 

22,989

 

 

22,521

 

 

827

 

 

332

 

 

75

 

 

38,777

 

 

42,371

 

 

44,907

Provision for (recovery of) doubtful accounts

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 

 —

 

 

 

 —

 

 

 

 2

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 2

 

 

 —

 

 

 —

Depreciation and amortization

 

 

102

 

 

94

 

 

387

 

 

 8

 

 

 

16

 

 

 

21

 

 

 

93

 

 

81

 

 

112

 

 

120

 

 

120

 

 

120

 

 

 —

 

 

 —

 

 

 —

 

 

323

 

 

311

 

 

640

Other income

 

 

 —

 

 

 —

 

 

 

 

 

 —

 

 

 

 —

 

 

 

 

 

 

 

 —

 

 

 —

 

 

 

 

 

(3,500)

 

 

 —

 

 

 

 

 

 —

 

 

 —

 

 

 

 

 

(3,500)

 

 

 —

 

 

 —

Total expenses

 

 

20,357

 

 

14,273

 

 

13,095

 

 

7,539

 

 

 

1,333

 

 

 

1,444

 

 

 

93,153

 

 

79,743

 

 

80,469

 

 

34,170

 

 

42,728

 

 

38,529

 

 

1,499

 

 

332

 

 

75

 

 

156,718

 

 

138,409

 

 

133,612

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

30,522

 

 

11,049

 

 

8,828

 

 

3,706

 

 

 

(915)

 

 

 

(976)

 

 

 

95,308

 

 

98,116

 

 

72,916

 

 

13,475

 

 

6,964

 

 

15,560

 

 

(186)

 

 

(319)

 

 

(75)

 

 

142,825

 

 

114,895

 

 

96,253

Interest (income) expense, net (d)

 

 

(10,566)

 

 

(9,461)

 

 

(8,780)

 

 

 3

 

 

 

(2)

 

 

 

(33)

 

 

 

(17,386)

 

 

(16,459)

 

 

(14,241)

 

 

4,221

 

 

5,414

 

 

5,524

 

 

(564)

 

 

(577)

 

 

(583)

 

 

(24,292)

 

 

(21,085)

 

 

(18,113)

Equity in (earnings) loss in Real Estate and Other Affiliates (e)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 

 —

 

 

 

 —

 

 

 

(23,234)

 

 

(43,501)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(23,234)

 

 

(43,501)

 

 

 —

MPC segment EBT*

 

$

41,088

 

$

20,510

 

$

17,608

 

$

3,703

 

 

$

(913)

(f)

 

$

(943)

(f)

 

$

135,928

 

$

158,076

 

$

87,157

 

$

9,254

 

$

1,550

 

$

10,036

 

$

378

 

$

258

 

$

508

 

$

190,351

 

$

179,481

 

$

114,366

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(GAAP Basis) Residential Gross Margin %

 

 

66.4%

 

 

67.9%

 

 

63.1%

 

 

NM

 

 

 

NM

 

 

 

NM

 

 

 

40.8%

 

 

54.0%

 

 

46.7%

 

 

52.0%

 

 

51.5%

 

 

61.4%

 

 

47.6%

 

 

NM

 

 

NM

 

 

46.5%

 

 

55.0%

 

 

50.7%

(GAAP Basis) Commercial Gross Margin %

 

 

71.8%

 

 

71.1%

 

 

71.1%

 

 

45.9%

 

 

 

NM

 

 

 

NM

 

 

 

87.3%

 

 

50.7%

 

 

51.8%

 

 

76.3%

 

 

60.2%

 

 

70.4%

 

 

NM

 

 

NM

 

 

NM

 

 

62.4%

 

 

62.8%

 

 

67.0%

(*) For a reconciliation of (a)MPC segment EBT to consolidated income before taxes, refer to Note 17 – Segments in our Consolidated Financial Statements.

(a) Landland sales includesinclude deferred revenue from land sales closed in a previous period whichthat met criteria for recognition in the current period.

period and excludes amounts deferred from current period land sales that do not yet meet the recognition criteria.

(b)Builder price participation revenue is earned when a developer that acquired land from HHC develops and sells a home to an end user at a price higher than a predetermined breakpoint. The excess over the breakpoint is shared between HHC and the developer at the time of closing on the sale of the home based on ana previously agreed-upon percentage of the sales price of homes closed relative to the base lot price which was paid by the homebuilders to us.percentage. This revenue fluctuates based upon the number and the prices of homes closed that qualify for builder price participation payments.

(c) For


The following table presents segment EBT by MPC for the yearyears ended December 31: 
MPC Segment EBT by MPC2022-2021
thousands20222021$ Change
Bridgeland$94,913 $67,187 $27,726 
Summerlin179,063 245,674 (66,611)
Teravalis (a)(1,977)(11)(1,966)
The Woodlands(4,406)(11,703)7,297 
The Woodlands Hills17,690 16,405 1,285 
Columbia(2,296)(945)(1,351)
Segment EBT$282,987 $316,607 $(33,620)
Floreo (b)$(2,848)$(16)$(2,832)
(a)As of December 31, 2017, Other land revenues includes two sales2022, the Company owns an 88.0% interest and consolidates Teravalis. For additional detail, refer to Note 3 - Acquisitions and Dispositions in the Notes to Consolidated Financial Statements under Item 8 of utility easements at our Bridgeland community recordedthis Form 10-K.
(b)These amounts represent 100% of Floreo EBT. The Company owns a 50% interest in 2017 totaling $14.1Floreo. Refer to Note 2 - Investments in Unconsolidated Ventures in the Notes to Consolidated Financial Statements under Item 8 of this Form 10-K for a description of the joint venture and further discussion.

HHC 2022 FORM 10-K | 44
MANAGEMENT’S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Table of Contents
Index to Financial Statements
MPC Segment EBT decreased $33.6 million lesscompared to the prior-year period primarily due to lower equity earnings of $60.8 million, primarily related costs of $3.7 million.

(d) Interest expense, net reflects the amount of interest that is capitalized at the project level. Negative interest expense amounts relate to interest capitalized relating to debt assigned to our Operating Assets segment and corporate debt.

(e) Equity in earnings in Real Estate and Other Affiliates reflects our share of earnings in The Summit, partially offset by higher builder price participation of $26.6 million across all MPCs. Excluding the impact of the decrease in equity earnings, MPC EBT increased $27.2 million compared to the prior-year period.


Summerlin EBT decreased $66.6 million compared to the prior period.
–Equity earnings at The Summit decreased $59.4 million primarily related to lower sales in 2022 as a result of limited available Phase I inventory and an increase in projected amenity and completion costs recognized in 2022, partially offset by the gain recognized on the contribution of Phase II land in 2022.
–MPC sales, net of MPC cost of sales decreased $27.4 million primarily due to the following activity.
–decrease in superpad acres sold partially offset by an increase in price per acre, with 94.6 acres sold at an average price of $1.1 million per acre in 2022, compared to 310.9 acres sold at an average price of $656,000 per acre in 2021
–decrease in custom lots sold, with 4 lots sold with an average price of $2.2 million in 2022, compared to 15 lots sold with an average price of $1.5 million in 2021
–increase in institutional acres sold, with 16.6 acres sold at an average price of $1.6 million per acre in 2022, compared to no institutional land sales in 2021
–Builder price participation increased $17.7 million due to more eligible home closings and higher home sale prices.

Bridgeland EBT increased $27.7 million compared to the prior period.
–MPC sales, net of MPC cost of sales increased $27.2 million primarily due to the following activity.
–increase in commercial acres sold, with 75.0 acres sold at an average price of $507,000 per acre in 2022, compared to no commercial land sales in 2021
–increase in residential price per acre, with 156.8 acres sold at an average price of $544,000 per acre in 2022, compared to 158.1 acres sold at an average price of $468,000 per acre in 2021

The Woodlands EBT increased $7.3 million compared to the prior period.
–MPC sales, net of MPC cost of sales increased $5.7 million primarily due to the following activity.
–increase in residential acres sold and price per acre, with 7.4 acres sold in Aria Isle, an exclusive gated community, at an average price of $3.0 million per acre in 2022, compared to 3.9 acres sold at an average price of $618,000 per acre in 2021
–decrease in commercial acres sold, with no commercial land sales in 2022, compared to 1.6 acres sold at an average price of $1.7 million per acre in 2021

The Woodlands HillsEBT increased $1.3 million compared to the prior period.
–MPC sales, net of MPC cost of sales decreased $1.5 million primarily due to the following activity.
–decrease in residential acres sold partially offset by an increase in price per acre, with 61.9 acres sold at an average price of $382,000 per acre in 2022, compared to 80.1 acres sold at an average price of $337,000 per acre in 2021
–increase in institutional acres sold, with 8.0 acres sold at an average price of $175,000 per acre in 2022, compared to no institutional land sales in 2021

MPC Equity Investments

The Summit
The Summit, our joint venture which commenced lotwith Discovery, offers a mix of custom lots, single-family homes and clubhouse suites in our Summerlin MPC. The original 555-acre community (Phase I) is nearing completion and consists of approximately 270 homes including 32 condominiums. In 2022, the Company contributed an additional 54 acres (Phase II) to The Summit adjacent to the existing Summit community to develop approximately 28 custom home sites. We recognized equity earnings of $30.0 thousand in 2022 and $59.4 million in 2021. We received no cash distributions in 2022 and $114.2 million in 2021.

Floreo
Land development is currently underway at Floreo, our joint venture with Trillium Development Holding Company, LLC. Land sales are expected to begin in the second quarterhalf of 2016.

(f)2023.


For additional details on The negative MPC segment EBTSummit and Floreo, refer to Note 2 - Investments in Maryland in 2016 and 2015 is due to real estate taxes and administrative expenses.

NM – Not Meaningful

MPC revenues vary between periods based on economic conditions and several factors including location, availability of land for sale, development density and residential or commercial use. Gross margin for each MPC will vary from period to period based on the locations of the land sold and the related costs associated with developing the land sold. Reported results differ significantly from actual cash flows generated principally because cost of sales for GAAP purposes is derived from margins calculated using carrying values, projected future improvements and other capitalized project costs in relation to projected future land sale revenues. Carrying values, generally, represent acquisition and development costs reduced by any previous impairment charges. Development expenditures are capitalized and generally not reflectedUnconsolidated Ventures in the Notes to Consolidated Financial Statements under Item 8 of Operations in the current period. Accordingly, Cost of sales – land includes both actual and estimated future costs allocated based upon relative sales value to the lots or land parcels in each of the villages and neighborhoods in our MPCs.

this Form 10-K.


33

HHC 2022 FORM 10-K | 45

MANAGEMENT’S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Table of Contents
Index to Financial Statements

Table of Contents

Residential and Commercial Land SalesThe following schedulestables detail our residential and commercial land sales for the years ended December 31:

Summary of MPC Land Sales Closed
Land SalesAcres SoldAverage Price Per Acre
thousands202220212022202120222021
Residential Land Sales Closed
Bridgeland
Single family$85,320 $73,999 156.8 158.1 $544 $468 
Summerlin
Superpad sites108,196 203,855 94.6 310.9 1,144 656 
Custom lots8,910 22,270 2.0 11.7 4,455 1,903 
The Woodlands
Single family21,864 2,412 7.4 3.9 2,955 618 
The Woodlands Hills
Single family23,659 26,956 61.9 80.1 382 337 
Total residential land sales closed (a)$247,949 $329,492 322.7 564.7 $768 $583 
Commercial Land Sales Closed
Bridgeland
Commercial$38,034 $— 75.0 — $507 $— 
Institutional9,937 9,335 35.7 58.1 278 161 
Summerlin
Commercial— 4,250 — 6.3 — 675 
Institutional26,016 — 16.6 — 1,567 — 
The Woodlands
Commercial— 2,694 — 1.6 — 1,684 
Institutional— 827 — 1.5 — 551 
The Woodlands Hills
Institutional1,396 — 8.0 — 175 — 
Total commercial land sales closed (a)$75,383 $17,106 135.3 67.5 $557 $253 
(a)Excludes revenues related to sales closed in a previous period and deferred for recognition that met criteria for recognition in the current period. Please see the Reconciliation of MPC Land Sales Closed to GAAP Land Sales Revenue table below which reconciles Total residential and commercial land sales closed to Land sales revenue for the years ended December 31, 2017, 20162022 and 2015:

2021.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Summary of Residential MPC Land Sales Closed for the Year Ended December 31, 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Land Sales

 

Acres Sold

 

Number of Lots/Units

 

Price per acre

 

Price per lot

($ in thousands)

 

2017

  

2016

  

2015

 

2017

  

2016

  

2015

 

2017

  

2016

  

2015

 

2017

  

2016

  

2015

 

2017

 

2016

 

2015

Bridgeland

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Single family - detached

 

$

30,429

 

$

20,474

 

$

10,856

 

80.7

 

55.0

 

28.4

 

 

391

 

 

296

 

 

130

 

$

377

 

$

372

 

$

382

 

$

78

 

$

69

 

$

84

$ Change

 

 

9,955

 

 

9,618

 

 

 

 

25.7

 

26.6

 

 

 

 

95

 

 

166

 

 

 

 

 

 5

 

 

(10)

 

 

 

 

 

 9

 

 

(15)

 

 

 

% Change

 

 

48.6%

 

 

88.6%

 

 

 

 

46.7%

 

93.7%

 

 

 

 

32.1%

 

 

127.7%

 

 

 

 

 

1.3%

 

 

(2.6%)

 

 

 

 

 

13.0%

 

 

(17.9%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maryland Communities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

No residential land sales

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Summerlin

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Superpad sites

 

 

110,223

 

 

96,843

 

 

92,219

 

201.5

 

231.7

 

177.7

 

 

1,164

 

 

1,071

 

 

555

 

 

547

 

 

418

 

 

519

 

 

95

 

 

90

 

 

166

Single family - detached

 

 

 —

 

 

 —

 

 

13,650

 

 —

 

 —

 

14.9

 

 

 —

 

 

 —

 

 

75

 

 

 —

 

 

 —

 

 

916

 

 

 —

 

 

 —

 

 

182

Custom lots

 

 

10,515

 

 

13,865

 

 

8,640

 

5.1

 

7.4

 

5.8

 

 

11

 

 

15

 

 

14

 

 

2,062

 

 

1,874

 

 

1,490

 

 

956

 

 

924

 

 

617

Total

 

 

120,738

 

 

110,708

 

 

114,509

 

206.6

 

239.1

 

198.4

 

 

1,175

 

 

1,086

 

 

644

 

 

584

 

 

463

 

 

577

 

 

103

 

 

102

 

 

178

$ Change

 

 

10,030

 

 

(3,801)

 

 

 

 

(32.5)

 

40.7

 

 

 

 

89

 

 

442

 

 

 

 

 

121

 

 

(114)

 

 

 

 

 

 1

 

 

(76)

 

 

 

% Change

 

 

9.1%

 

 

(3.3%)

 

 

 

 

(13.6%)

 

20.5%

 

 

 

 

8.2%

 

 

68.6%

 

 

 

 

 

26.1%

 

 

19.9%

 

 

 

 

 

1.0%

 

 

(42.7%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Woodlands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Single family - detached

 

 

28,393

 

 

24,950

 

 

27,161

 

57.0

 

51.2

 

42.9

 

 

227

 

 

204

 

 

160

 

 

498

 

 

487

 

 

633

 

 

125

 

 

122

 

 

170

Single family - attached

 

 

8,175

 

 

7,010

 

 

5,280

 

1.2

 

5.9

 

5.8

 

 

28

 

 

67

 

 

65

 

 

6,813

 

 

1,188

 

 

910

 

 

292

 

 

105

 

 

81

Total

 

 

36,568

 

 

31,960

 

 

32,441

 

58.2

 

57.1

 

48.7

 

 

255

 

 

271

 

 

225

 

 

628

 

 

560

 

 

666

 

 

143

 

 

118

 

 

144

$ Change

 

 

4,608

 

 

(481)

 

 

 

 

1.1

 

8.4

 

 

 

 

(16)

 

 

46

 

 

 

 

 

68

 

 

(106)

 

 

 

 

 

25

 

 

(26)

 

 

 

% Change

 

 

14.4%

 

 

(1.5%)

 

 

 

 

1.9%

 

17.2%

 

 

 

 

(5.9%)

 

 

20.4%

 

 

 

 

 

12.1%

 

 

(16.0%)

 

 

 

 

 

21.2%

 

 

(18.2%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Woodlands Hills

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Single family - detached

 

 

1,282

 

 

 —

 

 

 —

 

4.1

 

 —

 

 —

 

 

18

 

 

 —

 

 

 —

 

 

313

 

 

 —

 

 

 —

 

 

71

 

 

 —

 

 

 —

Total

 

 

1,282

 

 

 —

(a)

 

 —

(a)

4.1

 

 —

 

 —

 

 

18

 

 

 —

 

 

 —

 

 

313

 

 

 —

 

 

 —

 

 

71

 

 

 —

 

 

 —

$ Change

 

 

1,282

 

 

 —

 

 

 

 

4.1

 

 —

 

 

 

 

18

 

 

 —

 

 

 

 

 

313

 

 

 —

 

 

 

 

 

71

 

 

 —

 

 

 

% Change

 

 

NM

 

 

 —

 

 

 

 

NM

 

 —

 

 

 

 

NM

 

 

 —

 

 

 

 

 

NM

 

 

 —

 

 

 

 

 

NM

 

 

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total residential land sales closed in period (b)

 

$

189,017

 

$

163,142

 

$

157,806

 

349.6

 

351.2

 

275.5

 

 

1,839

 

 

1,653

 

 

999

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Reconciliation of MPC Land Sales Closed to GAAP Land Sales Revenue The following table reconciles Total residential and commercial land sales closed in the years ended December 31, 2022 and 2021, to Master Planned Community land sales for the respective periods. Total net recognized (deferred) revenue includes revenues recognized in the current period which are related to sales closed in prior periods, offset by revenues deferred on sales closed in the current period.
thousands20222021
Total residential land sales closed$247,949 $329,492 
Total commercial land sales closed75,383 17,106 
Net recognized (deferred) revenue:
Bridgeland(18,388)(8,174)
The Woodlands Hills(172)— 
Summerlin3,248 (1,568)
Total net recognized (deferred) revenue(15,312)(9,742)
Special Improvement District revenue8,045 9,361 
Master Planned Community land sales$316,065 $346,217 

HHC 2022 FORM 10-K | 46

(a)

The Woodlands Hills began closing land sales in the fourth quarter

MANAGEMENT’S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Table of 2017.

Contents
Index to Financial Statements

(b)

Excludes revenues closed and deferred for recognition in a previous period that met criteria for recognition in the current period. Please see the Reconciliation of MPC Land Sales Closed to GAAP Land Sales Revenue table below which reconciles Total residential and commercial land sales closed to Land sales revenue for the years ended December 31, 2017, 2016 and 2015.

34

Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Summary of Commercial MPC Land Sales Closed for the Year Ended December 31, 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Land Sales

 

Acres Sold

 

Price per acre

($ in thousands)

 

2017

  

2016

  

2015

 

2017

  

2016

  

2015

 

 

2017

 

 

2016

 

 

2015

Bridgeland

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Not-for-Profit

 

$

2,379

 

$

 —

 

$

20,664

 

9.0

 

 —

 

162.4

 

$

264

 

$

 —

 

$

127

$ Change

 

 

2,379

 

 

(20,664)

 

 

 

 

9.0

 

(162.4)

 

 

 

 

264

 

 

(127)

 

 

 

% Change

 

 

NM

 

 

(100.0%)

 

 

 

 

NM

 

(100.0%)

 

 

 

 

NM

 

 

(100.0%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maryland Communities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Medical

 

 

10,800

 

 

 —

 

 

 —

 

11.3

 

 —

 

 —

 

 

956

 

 

 —

 

 

 —

$ Change

 

 

10,800

 

 

 —

 

 

 

 

11.3

 

 —

 

 

 

 

956

 

 

 —

 

 

 

% Change

 

 

NM

 

 

 —

 

 

 

 

NM

 

 —

 

 

 

 

NM

 

 

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Summerlin

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Not-for-profit

 

 

 —

 

 

348

 

 

 

 

 —

 

10.0

 

 —

 

 

 —

 

 

35

 

 

 —

Other

 

 

1,276

 

 

 —

 

 

3,936

 

5.0

 

 —

 

20.3

 

 

255

 

 

 —

 

 

194

Total

 

 

1,276

 

 

348

 

 

3,936

 

5.0

 

10.0

 

20.3

 

 

255

 

 

35

 

 

194

$ Change

 

 

928

 

 

(3,588)

 

 

 

 

(5.0)

 

(10.3)

 

 

 

 

220

 

 

(159)

 

 

 

% Change

 

 

266.7%

 

 

(91.2%)

 

 

 

 

(50.0%)

 

(50.7%)

 

 

 

 

628.6%

 

 

(82.0%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Woodlands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Medical

 

 

 —

 

 

10,405

 

 

8,422

 

 —

 

4.3

 

5.0

 

 

 —

 

 

2,420

 

 

1,684

Not-for-profit

 

 

 —

 

 

 —

 

 

733

 

 —

 

 —

 

5.0

 

 

 —

 

 

 —

 

 

147

Other

 

 

3,799

 

 

 —

 

 

2,247

 

10.4

 

 —

 

2.4

 

 

365

 

 

 —

 

 

936

Total

 

 

3,799

 

 

10,405

 

 

11,402

 

10.4

 

4.3

 

12.4

 

 

365

 

 

2,420

 

 

920

$ Change

 

 

(6,606)

 

 

(997)

 

 

 

 

6.1

 

(8.1)

 

 

 

 

(2,055)

 

 

1,500

 

 

 

% Change

 

 

(63.5%)

 

 

(8.7%)

 

 

 

 

141.9%

 

(65.3%)

 

 

 

 

(84.9%)

 

 

163.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total commercial land sales closed in period (a)

 

$

18,254

 

$

10,753

 

$

36,002

 

35.7

 

14.3

 

195.1

 

 

 

 

 

 

 

 

 

(a)

Excludes revenues closed and deferred for recognition in a previous period that met criteria for recognition in the current period. Please see the Reconciliation of MPC Land Sales Closed to GAAP Land Sales Revenue table below which reconciles Total residential and commercial land sales closed to Land sales for the years ended December 31, 2017, 2016, and 2015.

35

Table of Contents

Although our business does not involve the sale or resale of homes, we believe that net new home sales are an important indicator of future demand for our superpad sites and finished lots. Therefore, we use this statistic where relevant in our discussion of our MPC operating results herein. Net new home sales reflect home sales made by homebuilders, less cancellations. Cancellations generally occur when a home buyerhomebuyer signs a contract to purchase a home but later fails to qualify for a home mortgage or is unable to provide an adequate down payment to complete the home sale.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplementary Information for the Year Ended December 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net New Home Sales

 

Median Home Sales Price

($ in thousands)

 

2017

  

2016

  

2015

 

2017

  

2016

  

2015

Bridgeland

 

423

 

333

 

199

 

$

347

 

$

328

 

$

409

$ Change

 

90

 

134

 

 

 

 

19

 

 

(81)

 

 

 

% Change

 

27.0%

 

67.3%

 

 

 

 

5.8%

 

 

(19.8%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maryland Communities - No New Home Sales

 

N/A

 

N/A

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Summerlin

 

1,022

 

682

 

602

 

 

564

 

 

540

 

 

533

$ Change

 

340

 

80

 

 

 

 

24

 

 

 7

 

 

 

% Change

 

49.9%

 

13.3%

 

 

 

 

4.4%

 

 

1.3%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Woodlands

 

340

 

248

 

256

 

 

533

 

 

557

 

 

562

$ Change

 

92

 

(8)

 

 

 

 

(24)

 

 

(5)

 

 

 

% Change

 

37.1%

 

(3.1%)

 

 

 

 

(4.3%)

 

 

(0.9%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Woodlands Hills - No New Home Sales

 

N/A

 

N/A

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

Reconciliation of MPC Land Sales Closed to GAAP Land Sales Revenue

The following table reconciles Total residential and commercial land sales closed in the year ended December 31, 2017, 2016 and 2015, respectively, to Land sales revenue for the respective periods. Total net recognized (deferred) revenue includes revenues recognized in the current period which related to sales closed in prior periods, offset by revenues deferred on sales closed in the current period.

 

 

 

 

 

 

 

 

 

 

 

 

For the Year Ended December 31,

(In thousands)

 

2017

  

2016

  

2015

Total residential land sales closed in period

 

$

189,017

 

$

163,142

 

$

157,806

Total commercial land sales closed in period

 

 

18,254

 

 

10,753

 

 

36,002

Net recognized (deferred) revenue:

 

 

 

 

 

 

 

 

 

  Bridgeland

 

 

6,722

 

 

3,780

 

 

(11,136)

  Summerlin

 

 

20,063

 

 

29,596

 

 

(16,043)

Total net recognized (deferred) revenue

 

 

26,785

 

 

33,376

 

 

(27,179)

Special Improvement District revenue

 

 

14,539

 

 

8,047

 

 

20,770

Land sales

 

$

248,595

 

$

215,318

 

$

187,399

36

Net New Home SalesMedian Home Sales Price
thousands except percentages202220212022-2021 % Change202220212022-2021 % Change
Bridgeland566 713 (20.6)%$  525 $  463 13.4 %
Summerlin775 1,578 (50.9)%722 628 15.0 %
The Woodlands (a)32 144 (77.8)%1,285 750 71.3 %
The Woodlands Hills201 326 (38.3)%429 368 16.6 %

Table of Contents

Houston

The Houston area market continues to experience population and job growth, which has resulted in increased demand in our MPCs. We experienced minimal impact from Hurricane Harvey, evidenced by an increase in new(a) New home sales in Bridgeland and The Woodlands of 27% and 37%, respectively, for the year ended December 31, 2017 comparedare not expected to the same period in 2016. The 423 new home sales in Bridgeland in 2017 is the highest annual number of sales in the community’s ten-year history. We expect demand to continuebe significant as manufacturing and service sector job growth in Houston has improved recently. Exxon Mobil recently announced plans to relocate approximately 1,600 jobs to Spring, Texas, just south of The Woodlands, beginning in 2018. We believe that our strategy of expanding the offering of lots priced for homes under $500,000 within our communities will result in continued homebuilder demand for land at our Bridgeland and The Woodlands MPCs.

Bridgeland

Land sales revenues totaled $39.5 million for the year ended December 31, 2017, which was $15.3 million, or 63.0% higher than the same period in 2016 primarily as a result of higher residential land sales and also due to the recognition of revenues deferred in previous periods. Land sales revenues totaled $24.3 million for the year ended December 31, 2016, which was $3.9 million, or 19.0% higher than the same period in 2015 as a result of higher residential land sales and the recognition of revenues deferred in previous periods.

Residential land sales for the year ended December 31, 2017 were higher compared to 2016 partially as a result of our development of additional lot sizes to accommodate homebuilders’ demand and the opening of Parkland Village, a new phase in the community. For the year ended December 31, 2017, Bridgeland sold 80.7 residential acres compared to 55.0 acres in 2016. The average price per residential acre for single family – detached product increased $5,000, or 1.3% to $377,000 for the year ended December 31, 2017 compared to $372,000 in 2016 as a result of the mix of lots sold. Residential land sales for the year ended December 31, 2016 were substantially higher compared to 2015 due to increased demand for products in the mid-range of the residential market. For the year ended December 31, 2016, Bridgeland sold 55.0 residential acres compared to 28.4 acres in 2015. The average price per residential acre for single family – detached product decreased $10,000, or 2.6% to $372,000 for the year ended December 31, 2016 compared to $382,000 in 2015 due to a combination of lot price adjustments to meet current market conditions and the mix of lots sold in the respective periods. For the year ended December 31, 2016, there was a larger percentage of smaller, lower priced lots sold than in the same periods in 2015.

Two church sites totaling 9.0 acres were sold at an average price of $264,000 per acre in the year ended December 31, 2017 compared to no commercial land sales in the same period in 2016. There were three land sales in the last half of 2015 for a school site, a church site and a fire station totaling $20.7 million, of which $11.1 million was recorded as deferred income due to performance obligations related to these commercial land sales. The work has been completed and $6.7 million of previously deferred income was recognized in the year ended December 31, 2017 compared to $3.8 million in the same period in 2016. 

As of December 31, 2017, Bridgeland had 440 residential lots under contract, of which 433 are scheduled to close in 2018 for $31.1 million.

Builder price participation revenue decreased 47.2% and 36.8% for the years ended December 31, 2017 and 2016, respectively, compared to the prior years at Bridgeland due to a combination of lower priced homes being closed and adjustments to participation terms in our homebuilder contracts to meet current market conditions. 

Other land revenues increased for the year ended December 31, 2017 compared to 2016, primarily due to the sale of utility easements generating $10.4 million in revenue net of $3.7 million in related costs.

The Woodlands

Land sales revenues totaled $40.4 million for the year ended December 31, 2017, which was $2.0 million, or 4.7% lower than the same period in 2016 as a result of a $4.6 million increase in residential land sales, offset by a $6.6 million decrease in commercial land sales. Land sales revenues totaled $42.4 million for the year ended December 31, 2016, which was $1.5 million, or 3.4% lower than the same period in 2015 as a result of $0.5 million decrease in residential land sales and a $1.0 million decrease in commercial land sales.

For the year ended December 31, 2017, The Woodlands sold 58.2 residential acres compared to 57.1 acres in 2016 and the average price per residential acre increased $68,000, or 12.1% to $628,000 in 2017 compared to $560,000 in 2016. The increase

is nearing completion.

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Table of Contents

in price per residential acre is due primarily to the sale of single family-attached lots in the premium East Shore neighborhood. For the year ended December 31, 2016, The Woodlands sold 57.1 residential acres compared to 48.7 acres in 2015, and the average price per residential acre decreased $106,000, or 16.0% to $560,000 in 2016 compared to $666,000 in 2015. The increase in acres sold in 2016 was the result of providing more mid-market priced lots to homebuilders to meet current market conditions.

For the year ended December 31, 2017, The Woodlands sold 10.4 acres of commercial land at $365,000 per acre which included a 9.1-acre site with a less desirable location with no freeway frontage and limited access, resulting in a lower price per acre.For the year ended December 31, 2016, there were two medical-use commercial land sales totaling 4.3 acres. Revenues in 2016 totaled $10.4 million, or an average of $2.4 million per acre, as one of the sites was 3.1 acres with freeway frontage that generated $2.7 million in revenue per acre. For the year ended December 31, 2015, there were 12.4 commercial acres sold at an average price of $920,000 per acre, including a 5.0-acre church site that sold for $147,000 per acre.

At December 31, 2017, there were 234 residential lots under contract in The Woodlands, of which 142 are scheduled to close in 2018 for $25.1 million.

Builder price participation revenue decreased 54.4% and 63.0% for the years ended December 31, 2017 and 2016, respectively, as compared to the respective prior year as contractual terms with our homebuilders were adjusted to align with the current Houston market.

Other land revenues increased for the year ended December 31, 2017 compared to 2016, and decreased for the year ended December 31, 2016 compared to 2015. These fluctuations are due to variable revenues from a common-area maintenance arrangement with the Township.

The Woodlands Hills

The first phase of lots were delivered in December 2017, and 18 lots consisting of 4.1 acres were sold for $1.3 million, or $313,000 per acre. At December 31, 2017, there were 85 additional lots under contract with homebuilders, all of which are scheduled to close in 2018 for $5.2 million. Construction and sales of homes will commence in early 2018, and we anticipate that the median new home price will be approximately $350,000, which we expect to be competitive in the Houston market.

Maryland Communities

Our Columbia, Gateway, Emerson and Fairwood MPCs contain approximately 97 commercial acres remaining to be developed. Commercial land sales for the year ended December 31, 2017 relate to 11.3 acres sold for $10.8 million for proposed medical office buildings. There were no commercial land sales for the year ended December 31, 2016 and 2015. However, 45 acres were transferred to our Strategic Developments segment relating to pending or active development projects. All of the residential inventory was sold out in prior years.

Summerlin

The Las Vegas home market remains strong as there were 1,022 new home sales in Summerlin in 2017, an increase of 49.9% over 2016. Our land sales revenues totaled $156.6 million for the year ended December 31, 2017, which was $7.9 million, or 5.3% higher than the same period in 2016 primarily as a result of a higher average price per acre on residential land sold. Land sales revenues totaled $148.7 million for the year ended December 31, 2016, which was $25.5 million, or 20.7% higher than the same period in 2015 due to the recognition of revenues deferred in previous periods.

Summerlin’s residential land sales for the year ended December 31, 2017 totaled 206.6 acres compared to 239.1 for the same period in 2016. The average price per acre for the year ended December 31, 2017 of $584,000 is $121,000, or 26.1% higher than the average price per acre of $463,000 for the same period in 2016. The increase in the price per acre is due to the $40 million bulk sale of a 116.8-acre parcel at $342,000 per acre in 2016. This parcel required the buyer to install power and drainage facilities to the site and, as a result, warranted a lower price per acre compared to our typical superpad sales. However, the gross margin on this parcel sale was higher than normal due to lower development costs. Residential land sales for the year ended December 31, 2016 totaled 239.1 acres compared to 198.4 for the same period in 2015. The average price per acre for the year ended December 31, 2016 of $463,000 is not comparable to the average price per acre of $577,000 for the same period in 2015 due to the 116.8-acre parcel sale in 2016 explained above, and the residential gross margin for the year ended December 31, 2016 was higher than in 2015 as we incurred lower development costs on the undeveloped parcel. Our residential gross

38

Table of Contents

margin for the year ended December 31, 2017 is lower than the same period in 2016 as our 2017 land sales consist of more steeply graded parcels which are more costly to develop.

For the year ended December 31, 2017, we sold a 5.0-acre parking site in Summerlin for $255,000 per acre. For the year ended December 31, 2016, we sold a 10.0-acre school site to the County in Summerlin for $35,000 per acre. During the year ended December 31, 2015, we sold a 16.7-acre school site to a charter school for $0.8 million or $48,000 per acre, and a 3.6-acre school site for $3.1 million, or $873,000 per acre to a university to construct a post-graduate healthcare education facility.

Builder price participation increased 13.9% for the year ended December 31, 2017 compared to 2016 primarily due to the increase in the number of home closings in 2017. Builder price participation decreased 11.1% for the year ended December 31, 2016 compared to 2015 primarily due to the near sell-out of a neighborhood in 2015 that produced the highest price participation per home in Summerlin. 

As of December 31, 2017, there was one superpad site totaling 42.5 acres and two custom lots under contract which are scheduled to close in 2018 for a total of $27.0 million.

The Summit

Land development began at The Summit, our joint venture with Discovery Land, in the second quarter of 2015 and the development continues to progress. Custom lot closings began in the second quarter of 2016, and a total of 77 lots have closed for $240.8 million through December 31, 2017. For the year ended December 31, 2017, 17 residential lots closed for $55.9 million, compared to 60 lots for $184.9 million for the same period in 2016. We recognized $23.2 million and $43.5 million in equity in earnings, and cash distributions of $10.0 million and $22.9 million were received in the years ended December 31, 2017 and 2016, respectively. The significant number of lot closings in 2016 resulted from a backlog of sales contracts executed between the second quarter of 2015 and the second quarter of 2016 when lots were not yet available for sale. Please refer to Note 5 –  Real Estate and Other Affiliates in our Consolidated Financial Statements for a description of the joint venture and further discussion.

MPC Net Contribution

In addition to MPC segment EBT, MPC Net Contribution is a non-GAAP financial measure derived from EBT, adjusted for certain items as discussed below. Management uses this measure because it captures current period performance through the velocity of sales, as well as current period development expenditures based upon demand at our MPCs, which varies depending upon the stage of the MPCs development lifecycle, and the overall economic environment.

As reconciled below for each of the respective periods, we calculate MPC Net Contribution is defined as MPC segment EBT, adjusted to exclude timing differences related toplus MPC cost of sales, and non-cash depreciationDepreciation and amortization, and net collections from Special Improvement District (SID) bonds and Municipal Utility District (MUD) receivables, reduced by the current periodMPC development expenditures, land acquisitions and land acquisition expenditures (net of municipality reimbursements) which relate to the ordinary course of our long-term master planned community development business, further adjusted for distributedEquity in earnings from unconsolidated development ventures.

Althoughventures, net of distributions. MPC Net Contribution can be computed from GAAP elements of income, it is not a GAAP-based operational metric and should not be evaluated in additionused to and not consideredmeasure operating performance of the MPC assets as a substitute for or superior to, any GAAP measures of operating performance. Furthermore,such performance nor should it be used as a comparison metric with other companies may calculate Net Contribution in a different manner, which may hinder comparability.comparable businesses. A reconciliation of segment EBT to consolidated net income (loss) as computed in accordance with GAAPMPC Net Contribution is presented in Note 17 –  Segments.

below.

39


Table of Contents

The following table sets forth the MPC Net Contribution for the years ended December 31, 2017, 2016 and 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

2017-2016

 

2016-2015

(In thousands)

 

2017

  

2016

  

2015

 

Change

 

Change

MPC segment EBT (a)

 

$

190,351

 

$

179,481

 

$

114,366

 

$

10,870

 

$

65,115

Plus:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales - land

 

 

121,116

 

 

95,727

 

 

88,065

 

 

25,389

 

 

7,662

Depreciation and amortization

 

 

323

 

 

311

 

 

640

 

 

12

 

 

(329)

MUD and SID bonds collections, net (b)

 

 

56,509

 

 

37,672

 

 

20,345

 

 

18,837

 

 

17,327

Distributions from Real Estate and Other Affiliates

 

 

10,000

 

 

22,900

 

 

 —

 

 

(12,900)

 

 

22,900

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MPC development expenditures

 

 

(193,087)

 

 

(149,592)

 

 

(197,020)

 

 

(43,495)

 

 

47,428

MPC land acquisitions

 

 

(4,391)

 

 

(94)

 

 

(7,293)

 

 

(4,297)

 

 

7,199

Equity in (earnings) loss in Real Estate and Other Affiliates

 

 

(23,234)

 

 

(43,501)

 

 

 —

 

 

20,267

 

 

(43,501)

MPC Net Contribution

 

$

157,587

 

$

142,904

 

$

19,103

 

$

14,683

 

$

123,801

31:
2022-2021
thousands20222021$ Change
MPC segment EBT$282,987 $316,607 $(33,620)
Plus:
Master Planned Communities cost of sales119,466 153,630 (34,164)
Depreciation and amortization394 366 28 
MUD and SID bonds collections, net (a)131,126 46,460 84,666 
Distributions from unconsolidated ventures— 114,172 (114,172)
Less:
MPC development expenditures(396,102)(322,255)(73,847)
MPC land acquisitions— (574,253)574,253 
Equity in (earnings) losses from unconsolidated ventures1,407 (59,399)60,806 
MPC Net Contribution$139,278 $(324,672)$463,950 

(a)

For a detailed breakdown of our MPC segment EBT, refer to Note 17 – Segments in our Consolidated Financial Statements.

(a)SID collections are shown net of SID transfers to buyers in the respective periods.

(b)

SID collections are shown net of SID transfers to buyers in the respective periods.


MPC Net Contributioncontribution increased for the year ended December 31, 2017 compared to 20162022, primarily due to increasesno MPC land acquisitions in 2022. Excluding the impact of the acquisition of Teravalis in 2021, MPC segment EBT, CostNet Contribution decreased primarily due to a decrease in Distributions from unconsolidated ventures related to a large distribution received in 2021 representing the return of sales – land,the Company’s initial capital contribution in accordance with The Summit LLC agreement and MUD and SID bonds collections, net, offset by increasedhigher MPC development expenditures, MPC land acquisitions, and decreased income from Equity in earnings in Real Estate and other affiliates in 2017. MPC Net Contribution increased for the year ended December 31, 2016 compared to 2015 primarily due to an increase in MPC segment EBT at Summerlin, an increase inpartially offset by higher MUD and SID bond collections, and a reduction in net.

HHC 2022 FORM 10-K | 47
MANAGEMENT’S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Table of Contents
Index to Financial Statements
MPC development expenditures in 2016. While the land sales closed for the year ended December 31, 2016 decreased as compared to the same period in 2015, $33.4 million of revenue previously deferred due to future performance obligations met criteria for recognition in 2016. The Summit at our Summerlin MPC contributed earnings of $43.5 million for the year ended December 31, 2016, which was its first year of land sales.

Land InventoryThe following table sets forthsummarizes MPC land inventory activity for the years ended December 31, 2017 and 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

    

Bridgeland

    

Maryland Communities

    

Summerlin

 

The Woodlands

    

The Woodlands Hills

    

Total MPC

Balance December 31, 2015

 

$

435,220

 

$

22,143

 

$

864,276

 

 

$

220,099

 

$

101,104

 

$

1,642,842

Acquisitions

 

 

 —

 

 

 —

 

 

 —

 

 

 

94

 

 

 —

 

 

94

Development expenditures (a)

 

 

46,135

 

 

282

 

 

73,069

 

 

 

28,117

 

 

1,989

 

 

149,592

Cost of sales

 

 

(7,672)

 

 

 —

 

 

(68,436)

 

 

 

(19,619)

 

 

 —

 

 

(95,727)

MUD reimbursable costs (b)

 

 

(33,421)

 

 

 —

 

 

 —

 

 

 

(6,198)

 

 

(166)

 

 

(39,785)

Transfer to Strategic Development

 

 

 —

 

 

 —

 

 

 —

 

 

 

(539)

 

 

 —

 

 

(539)

Other

 

 

1,336

 

 

 3

 

 

13,634

(c)

 

 

(1,984)

 

 

95

 

 

13,084

Balance December 31, 2016

 

$

441,598

 

$

22,428

 

$

882,543

 

 

$

219,970

 

$

103,022

 

$

1,669,561

Acquisitions

 

 

3,001

 

 

 —

 

 

 —

 

 

 

1,415

 

 

(25)

 

 

4,391

Development expenditures (a)

 

 

74,798

 

 

21

 

 

88,964

 

 

 

17,798

 

 

11,506

 

 

193,087

MPC Cost of sales

 

 

(12,792)

 

 

(5,839)

 

 

(83,343)

 

 

 

(18,470)

 

 

(672)

 

 

(121,116)

MUD reimbursable costs (b)

 

 

(53,491)

 

 

 —

 

 

 —

 

 

 

(3,785)

 

 

(5,793)

 

 

(63,069)

Transfer to Strategic Developments

 

 

 —

 

 

 —

 

 

(22,991)

 

 

 

(8,151)

 

 

 —

 

 

(31,142)

Other

 

 

5,794

 

 

18

 

 

(12,940)

(d)

 

 

(2,728)

 

 

422

 

 

(9,434)

Balance December 31, 2017

 

$

458,908

 

$

16,628

 

$

852,233

 

 

$

206,049

 

$

108,460

 

$

1,642,278

activity:
thousandsBridgelandColumbiaSummerlinTeravalisThe WoodlandsThe Woodlands HillsTotal MPC
Balance December 31, 2020$486,867 $16,625 $888,954 $— $177,341 $117,732 $1,687,519 
Acquisitions— — — 569,541 4,712 — 574,253 
Development expenditures (a)142,556 — 156,433 — 5,448 17,818 322,255 
MPC Cost of sales(20,235)— (120,578)— (2,035)(10,782)(153,630)
MUD reimbursable costs (b)(102,563)— — — (248)(9,604)(112,415)
Transfer to Strategic Developments(1,617)— (1,700)— (892)— (4,209)
Investments in unconsolidated ventures— — — (59,000)— — (59,000)
Other15,145 — 8,615 — 3,092 1,143 27,995 
Balance December 31, 2021520,153 16,625 931,724 510,541 187,418 116,307 2,282,768 
Acquisitions— — — — — — — 
Development expenditures (a)189,752 — 161,540 195 14,844 29,771 396,102 
MPC Cost of sales(32,746)— (64,183)— (12,310)(10,227)(119,466)
MUD reimbursable costs (b)(145,995)— — — (110)(24,521)(170,626)
Transfer to Strategic Developments(777)— (12,424)— (4,433)— (17,634)
Other8,537 — (2,146)33,810 (53)234 40,382 
Balance December 31, 2022$538,924 $16,625 $1,014,511 $544,546 $185,356 $111,564 $2,411,526 

(a)Development expenditures are inclusive of capitalized interest and property taxes.

(b)MUD reimbursable costs represent land development expenditures transferred to MUD Receivables.

(c)    Primarily consists


HHC 2022 FORM 10-K | 48
MANAGEMENT’S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Table of Contents
Index to Financial Statements
Seaport

The Seaport is part non-stabilized operating asset, part development project and part operating business. As such, the Seaport has a greater range of possible outcomes than our other projects. The greater uncertainty is largely the result of: (i) seasonality; (ii) potential sponsorship revenue; (iii) potential event revenue; and (iv) business operating risks from various start-up businesses. We operate and own, either directly, through license agreements or in joint ventures, many of the tenants in the Seaport. As a $9.8result, the revenues and expenses of these businesses, as well as the underlying market conditions affecting these types of businesses, will directly impact the NOI of the Seaport. This is in contrast to our other retail properties where we primarily receive lease payments and are not as directly impacted by the operating performance of the underlying businesses. This causes the financial results and eventual stabilized yield of the Seaport to be less predictable than our other operating real estate assets with traditional lease structures. Further, as we open new operating businesses, either owned entirely or in partnership with third parties, we expect to incur pre-opening expenses and operating losses until those businesses stabilize, which likely will not happen until the Seaport reaches its critical mass of offerings. Given the factors and uncertainties listed above, we do not currently provide guidance on our expected NOI yield or stabilization date for the Seaport. As we move closer to opening a critical mass of offerings at the Seaport, we will re-establish goals for yield on costs and stabilization dates when the uncertainties and range of possible outcomes are clearer.

We primarily categorize the businesses in the Seaport segment into the following groups: Landlord Operations, Managed Businesses, the Tin Building and Events and Sponsorships.

Landlord Operations Landlord Operations represent physical real estate in the Historic District and Pier 17 that we have developed and own, and is inclusive of our office, retail and multi-family properties.

Managed Businesses Managed Businesses represent retail and food and beverage businesses in the Historic District and Pier 17 that HHC owns, either wholly or through partnerships with third parties, and operates, including license and management agreements. These businesses include, among others, The Fulton, Mister Dips, Carne Mare, Malibu Farm and Ssäm Bar. The Fulton and Malibu Farm are managed by Creative Culinary Management Company, LLC (CCMC), a Jean-Georges company, and Mister Dips and Carne Mare are managed by Seaport F&B LLC, an Andrew Carmellini company. These management companies are responsible for employment and supervision of all employees providing services for the food and beverage operations and restaurant as well as day-to-day operations and accounting for food and beverage operations.

In March of 2022, the Company paid $45 million for a 25% interest in Jean-Georges Restaurants, which currently operates over 40 restaurant and hospitality offerings around the world. The Company also paid $10 million in exchange for the option to acquire up to an additional 20% interest in Jean-Georges Restaurants. The Company reports its ownership interest in accordance with the equity method.

In 2023, we plan to expand our Managed Businesses portfolio with the launch of The Lawn Club, a new concept that will transform 20,000 square feet of the Fulton Market Building into an immersive indoor and outdoor experience that includes an extensive indoor grass area, a stylish clubhouse bar and a wide variety of lawn games.

Tin Building The Tin Building includes both landlord operations and managed business. The Company owns 100% of the Tin Building which was completed and placed in service during the third quarter of 2022. The Company leased 100% of the space to the Tin Building by Jean-Georges joint venture, a managed business in which the Company has an equity ownership interest and reports its ownership interest in accordance with the equity method. The Tin Building by Jean-Georges had a soft opening in early August and a grand opening celebration in late September, with an expanded focus on experiences including in-person dining, retail shopping and delivery. Subsequent to the grand opening, operating hours were constrained due to labor shortages; however, during the fourth quarter of 2022, despite continued labor shortages, operating hours were extended to seven days a week. The Tin Building by Jean-Georges is managed by CCMC, a Jean-Georges company. Based on capital contribution and distribution provisions for the Tin Building by Jean-Georges, HHC currently receives substantially all of the economic interest in the venture.

Events and Sponsorships Our events and sponsorships businesses include our concert series, event catering, private events and sponsorships. Food and beverage operations associated with concert concessions and catering are operated under management agreements with CCMC. The 2022 summer concert series, which began in May and ran through the end of October, included 60 shows, more than any previous year, and sold over 188,200 tickets, representing over 90% of available ticket inventory.

HHC 2022 FORM 10-K | 49
MANAGEMENT’S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Table of Contents
Index to Financial Statements
250 Water Street In October 2020, we announced our comprehensive proposal for the redevelopment of 250 Water Street, which includes the transformation of this underutilized full-block surface parking lot into a mixed-use development that will include affordable and market-rate apartments, community-oriented spaces and office space. This project, which includes approximately 547,000 zoning square feet, presents a unique opportunity at the Seaport to redevelop this site into a vibrant mixed-use asset, provide long-term viability to the South Street Seaport Museum and deliver much-needed affordable housing and economic stimulus to the area. In May 2021, we received approval from the New York City Landmarks Preservation Commission (LPC) on our proposed design for the 250 Water Street site. HHC received final approvals in December 2021 through the New York City Uniform Land Use Review Procedure known as ULURP, which will allow the necessary transfer of development rights to the parking lot site. Also in December 2021, an amendment to the Seaport ground lease was executed giving HHC extension options, at the discretion of HHC, for an additional 48 years from its current expiration in 2072 until 2120. We received a building foundation permit from the New York City Department of Buildings and began initial foundation work and remediation in the second quarter of 2022. Remediation of the site as a volunteer of the New York State Brownfield Cleanup program is expected to be completed in 2023. Various lawsuits have been filed challenging the LPC’s approval of our development project. For additional information regarding these lawsuits, see Note 10 - Commitments and Contingencies in the Notes to Consolidated Financial Statements under Item 8 of this Form 10-K.

Impact of COVID-19In response to the COVID-19 pandemic, we closed the Seaport in March 2020 and cancelled our 2020 Seaport summer concert series. Many businesses were able to resume operations, on a limited basis, in the third quarter of 2020. Most restrictions were lifted in June of 2021; however, many businesses at the Seaport continued to operate at reduced levels through the third quarter of 2021, primarily due to labor shortages. All venues were open and operating at close to full capacity during the fourth quarter of 2021; however, operations were negatively impacted by the rise of the Omicron variant in the beginning of 2022 before returning to normal in March 2022. Throughout the second through fourth quarters of 2022, substantially all businesses were open and operating at close to full capacity.

Segment EBTThe following table presents segment EBT for the Seaport for the years ended December 31: 
Seaport Segment EBT2022-2021
thousands20222021$ Change
Rental revenue$19,410 $7,901 $11,509 
Other land, rental and property revenues69,058 47,107 21,951 
Total revenues88,468 55,008 33,460 
Operating costs(102,271)(75,721)(26,550)
Rental property real estate taxes(885)(1,322)437 
(Provision for) recovery of doubtful accounts(1,237)(155)(1,082)
Total operating expenses(104,393)(77,198)(27,195)
Segment operating income (loss)(15,925)(22,190)6,265 
Depreciation and amortization(36,338)(30,867)(5,471)
Interest income (expense), net3,902 357 3,545 
Other income (loss), net245 (3,730)3,975 
Equity in earnings (losses) from unconsolidated ventures(36,273)(1,988)(34,285)
Segment EBT$(84,389)$(58,418)$(25,971)

Seaport segment EBT loss increased $26.0 million compared to the prior-year period primarily due to the following:
–Equity losses increased $34.3 million primarily driven by pre-opening costs and initial operating losses for the Tin Building by Jean-Georges, which opened in the third quarter of 2022 with limited operating hours.
–This was partially offset by a $6.9 million increase in accrued development expendituresTotal revenues, net of Operating costs driven by higher demand at our managed restaurants, a longer concert series, increased private events, and $3.9 million of utility deposits reclassified into land inventory at Summerlin.

(d) Includes $8.5 million of refundable utility deposits reclassified from land inventory and $4.4 million decrease in accrued development expenditures.

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Operating Assets

Operating assets typically generate rental revenues sufficient to cover their operating costs, except when a substantial portion, or all,the opening of the property is being redeveloped, vacated for development orTin Building, which was completed and placed in its initial lease-up phase.

Total revenues and expenses forservice in the third quarter of 2022.


HHC 2022 FORM 10-K | 50
MANAGEMENT’S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Table of Contents
Index to Financial Statements
Net Operating Assets segment are summarized as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

2017-2016

 

2016-2015

(In thousands)

 

2017

  

2016

  

2015

 

Change

 

Change

Minimum rents

 

$

182,468

 

$

172,437

 

$

149,064

 

$

10,031

 

$

23,373

Tenant recoveries

 

 

45,366

 

 

44,306

 

 

39,415

 

 

1,060

 

 

4,891

Hospitality revenues

 

 

76,020

 

 

62,252

 

 

45,374

 

 

13,768

 

 

16,878

Other rental and property revenues

 

 

23,701

 

 

16,170

 

 

25,453

 

 

7,531

 

 

(9,283)

Total revenues

 

 

327,555

 

 

295,165

 

 

259,306

 

 

32,390

 

 

35,859

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other property operating costs

 

 

71,748

 

 

60,506

 

 

68,078

 

 

11,242

 

 

(7,572)

Rental property real estate taxes

 

 

26,523

 

 

24,439

 

 

21,856

 

 

2,084

 

 

2,583

Rental property maintenance costs

 

 

12,872

 

 

12,033

 

 

10,236

 

 

839

 

 

1,797

Hospitality operating costs

 

 

56,362

 

 

49,359

 

 

34,839

 

 

7,003

 

 

14,520

Provision for doubtful accounts

 

 

2,710

 

 

5,601

 

 

3,998

 

 

(2,891)

 

 

1,603

Other income, net

 

 

315

 

 

(4,601)

 

 

(524)

 

 

4,916

 

 

(4,077)

Depreciation and amortization

 

 

122,421

 

 

86,313

 

 

89,075

 

 

36,108

 

 

(2,762)

Provision for impairment

 

 

 —

 

 

35,734

 

 

 —

 

 

(35,734)

 

 

35,734

Interest income

 

 

(22)

 

 

(19)

 

 

(37)

 

 

(3)

 

 

18

Interest expense

 

 

61,606

 

 

50,446

 

 

32,968

 

 

11,160

 

 

17,478

Equity in (earnings) loss from Real Estate and Other Affiliates

 

 

(3,267)

 

 

(2,802)

 

 

(1,883)

 

 

(465)

 

 

(919)

Total operating expenses

 

 

351,268

 

 

317,009

 

 

258,606

 

 

34,259

 

 

58,403

Income (loss) before development expenses

 

 

(23,713)

 

 

(21,844)

 

 

700

 

 

(1,869)

 

 

(22,544)

Demolition costs

 

 

1,605

 

 

194

 

 

2,412

 

 

1,411

 

 

(2,218)

Development-related marketing costs

 

 

3,346

 

 

947

 

 

7,934

 

 

2,399

 

 

(6,987)

Total development expenses

 

 

4,951

 

 

1,141

 

 

10,346

 

 

3,810

 

 

(9,205)

Operating Assets segment EBT*

 

$

(28,664)

 

$

(22,985)

 

$

(9,646)

 

$

(5,679)

 

$

(13,339)

(*)      For aIncome A reconciliation of Operating AssetsSeaport segment EBT to consolidated income (loss) before taxes, referSeaport NOI is presented below:

Seaport NOI2022-2021
thousands20222021$ Change
Total Seaport segment EBT$(84,389)$(58,418)$(25,971)
Add back:
Depreciation and amortization36,338 30,867 5,471 
Interest (income) expense, net(3,902)(357)(3,545)
Equity in (earnings) losses from unconsolidated ventures36,273 1,988 34,285 
Impact of straight-line rent456 1,632 (1,176)
Other (income) loss, net5,456 6,725 (1,269)
Seaport NOI$(9,768)$(17,563)$7,795 

The Seaport, including Managed Businesses, Events and Sponsorships and the Tin Building, is approximately 68% leased. We may continue to Note 17 – Segmentsincur operating expenses in excess of rental revenues while the remaining available space is in lease-up, as the Seaport continues to move toward its critical mass of offerings and until the economy recovers from the economic impact of the COVID-19 pandemic.

The below table presents Seaport NOI by category:
Seaport NOI by Category2022-2021
thousands20222021$ Change
Landlord Operations$(15,702)$(15,027)$(675)
Landlord Operations - Multi-family110 (5)115 
Managed Businesses(85)(1,057)972 
Tin Building4,015 — 4,015 
Events and Sponsorships1,894 (1,474)3,368 
Seaport NOI$(9,768)$(17,563)$7,795 

Seaport NOI improved compared to the prior-year period, primarily as a result of an earlier launch of the summer concert series and additional concerts scheduled in 2022 compared to 2021, increased demand at our Consolidated Financial Statements.

Minimum rentsmanaged restaurants, increased private event activity and tenant recoveriesrental revenue increased related to the Tin Building landlord operations.


Tin Building in the table above represents NOI from our landlord business and, as defined, excludes the impact of the Company’s equity ownership interest in the Tin Building by Jean-Georges managed business, which had a loss of $36.2 million for the year ended December 31, 2017 compared to 2016 primarily due to increases of $10.1 million for our office properties, $5.3 million at our multi-family properties, $0.7 million at our retail properties,2022, driven by pre-opening costs and $1.0 million related to our new National Hockey League (“NHL”) ground lease, partially offset by decreases of $6.0 millioninitial operating losses. Combined NOI related to the sale of Park West and transfer of Landmark Mall to Strategic Developments. The increase in our office properties was primarily due to One Merriweather being placed in service, the acquisition of One Mall North in ColumbiaTin Building landlord operations and the continued stabilizationCompany’s share of ONE Summerlin, 1725 Hughes Landing and Three Hughes Landing, offset primarily by a decrease for 110 North Wacker in ChicagoNOI related to the future redevelopmentTin Building by Jean-Georges was a loss of the property. The increase in our multi-family properties was primarily due to the purchase and consolidation of our joint venture partner’s 18.57% interest in Millennium Six Pines Apartments in July 2016 and ongoing leasing activities of One Lakes Edge. The increase in our retail properties was due to the ongoing stabilization of Lakeland Village Center and Creekside Village Green, offset by decreases at Ward Village Retail as certain properties are moved into redevelopment. Minimum rents and tenant recoveries increased$32.2 million for the year ended December 31, 2016 compared to 2015 primarily due to increases of $16.0million for our office properties, $6.0million for our multi-family properties and $5.9 million for our retail properties. The increase in our office properties was primarily due to the openings and on-going stabilization of 1725-1735 Hughes Landing Boulevard in 2016. The increase for our retail properties was primarily due to the elimination of co-tenancy allowances for the majority of tenants at Downtown Summerlin. The increase in our multi-family properties was primarily due to the opening of One Lakes Edge in 2015 and the purchase of our joint venture partner’s interest in Millennium Six Pines Apartments in July 2016.

The increase in hospitality revenues was primarily due to a $2.6 million increase at Embassy Suites at Hughes Landing and a $9.7 million increase at The Westin at The Woodlands as compared to 2016, with increases in hospitality operating costs due to the on-going stabilizationof the two properties placed in service in December 2015 and March 2016, respectively. The increase in profit margin for our hospitality properties for the year ended December 31, 2017 compared to 2016 is due primarily to focused efforts to reduce operating expenses at all hospitality properties. Hospitality revenues and hospitality operating costs increased for the year ended December 31, 2016 compared to 2015 due primarily to the openings of The Westin at The

2022.


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HHC 2022 FORM 10-K | 51

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Woodlands in March 2016 and the Embassy Suites at Hughes Landing in December 2015. The decrease in profit margin for hospitality for the year ended December 31, 2016 compared to 2015 is due primarily to a decrease in occupancy and conference services at The Woodlands Resort and Conference Center which maintains relatively high fixed costs associated primarily with labor.

Other rental and property revenue increased for the year ended December 31, 2017 compared to 2016 primarily due to revenue related to the Las Vegas 51s baseball team which was consolidated effective March 1, 2017 with the purchase of our joint venture partner’s 50.0% interest in the team. Other rental and property revenue decreased for the year ended December 31, 2016 compared to 2015 primarily due to the sale of The Club at Carlton Woods in September 2015.

Other property operating costs increased for the year ended December 31, 2017 compared to the same period in 2016 due primarily to the purchase of our joint venture partner’s 50.0% interest in the Las Vegas 51s baseball team, an increase in operating expenses for 110 North Wacker which were previously paid by the tenant, an increase at the Seaport District for the Fulton Market Building which was partially placed in service in the fourth quarter of 2016 and expenses related to the seasonal marketing events at Seaport, offset by the impact of the December 2016 sale of Park West and the first quarter of 2017 transfer of Landmark Mall to our Strategic Developments segment. Other property operating costs and rental property maintenance costs decreased for the year ended December 31, 2016 compared to 2015 due to the sale of The Club at Carlton Woods, partially offset by an increase for our office properties primarily due to the openings of 1725-1735 Hughes Landing Boulevard.

Rental property real estate taxes increased for the year ended December 31, 2017 compared to 2016, primarily due to the purchase and consolidation of Millennium Six Pines Apartments, placing Three Hughes Landing in service, and the late 2015 and early 2016 openings of the Embassy Suites at Hughes Landing and The Westin at The Woodlands, respectively, offset by the sale of Park West. Rental property real estate taxes increased for the year ended December 31, 2016 compared to 2015 primarily due to the openings of 1725-1735 Hughes Landing Boulevard, Downtown Summerlin and One Lakes Edge, partially offset by the 2015 sale of The Club at Carlton Woods.

The provision for doubtful accounts decreased for the year ended December 31, 2017 compared to the same period in 2016 due to improved tenant credit at our retail properties. The 2016 reserves related to two tenants at our retail properties and for remaining receivables from our Park West property, sold in December 2016. The provision for doubtful accounts increased for the year ended December 31, 2016 compared to the same period in 2015 due primarily to reserves for a bankrupt tenant at Ward Village and due to collectability concerns with tenants at Park West and Downtown Summerlin.

Other income, net decreased for the year ended December 31, 2017 compared to 2016 and increased for the year ended December 31, 2016 compared to 2015 due to the settlement received for TPC at Summerlin in 2016 and the write-off of a liability at Riverwalk in 2016.

Depreciation and amortization increased for the year ended December 31, 2017 compared to 2016 due to the acceleration of depreciation reflecting shorter remaining useful lives for two office and two retail buildings pending redevelopment and depreciation on assets acquired or newly placed in service during the year ended December 31, 2017. Depreciation and amortization decreased for the year ended December 31, 2016 compared to 2015 due to accelerated depreciation in 2015 in anticipation of development at Ward Village, offset primarily by assets placed in service in 2016.

There was no provision for impairment for the year ended December 31, 2017. The provision for impairment increased for the year ended December 31, 2016 compared to the same period in 2015 due to a $35.7 million impairment charge recognized on Park West during the third quarter of 2016 as a result of our shorter than previously anticipated holding period of the property. The property was sold in December 2016.

The increase in interest expense for the year ended December 31, 2017 as compared to the same period in 2016 is primarily due to higher loan balances on additional properties acquired or placed in service in 2017 and late 2016 as well as increases in the one month LIBOR rate throughout the second and third quarters of 2017. Interest expense increased for the year ended December 31, 2016 due to new debt on assets placed in service in 2016 and a full year of interest on assets placed in service during 2015. See further discussion in Note 8 –Mortgages, Notes and Loans Payable in our consolidated financial statements.

Equity in earnings from Real Estate and Other Affiliates increased for the year ended December 31, 2017 compared to the same period in 2016 primarily due to a $3.4 million distribution from our Summerlin Hospital investment as compared to $2.6 million for the same period in 2016 and due to increased earnings at The Metropolitan Downtown Columbia, offset by a decrease in

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33 Peck Slip due to an adjustment for depreciation, a decrease in Stewart Title due to increased competition in the area, a decrease in Constellation as a result of its consolidation with the purchase of our joint venture partner’s interest and a decrease the Las Vegas 51s baseball team investment subsequent to its consolidation with the purchase of our joint venture partner’s interest. Equity in earnings from Real Estate and Other Affiliates increased for the year ended December 31, 2016 compared to the same period in 2015 due primarily to the income earned from the purchase of our joint venture partner’s interest in Millennium Woodlands Six Pines and a $2.6 million distribution from our Summerlin Hospital investment as compared to $1.7 million in 2015.

Demolition costs for the year ended December 31, 2017 and 2016 relate to the demolition of Ward Warehouse, a portion of Ward Village Retail. Demolition costs decreased for the year ended December 31, 2016 versus 2015 due to the completion of the interior demolition of the Fulton Market Building part of the Seaport District NYC - Historic Area/Uplands.

Development-related marketing costs increased for the year ended December 31, 2017 as compared to the same period in 2016 due to an increase in marketing costs in the Seaport District. The costs in 2017 and 2016 relate to ongoing marketing initiatives as we continue leasing efforts in advance of the completion of our Pier 17 redevelopment. Development-related marketing costs decreased for the year ended December 31, 2016 compared to 2015 due to a decrease in marketing costs at the Seaport District NYC - Historic Area/Uplands. We incurred higher costs in 2015 due to greater marketing initiatives at Seaport District as we accelerated leasing efforts in advance of the 2016 completion of the Fulton Market Building.

Operating Assets Net Operating Income

We believe that NOI is a useful supplemental measure of the performance of our Operating Assets because it provides a performance measure that, when compared year over year, reflects the revenues and expenses directly associated with owning and operating real estate properties and the impact on operations from trends in rental and occupancy rates and operating costs. We define NOI as operating revenues (rental income, tenant recoveries and other revenue) less operating expenses (real estate taxes, repairs and maintenance, marketing and other property expenses). NOI excludes straight-line rents and amortization of tenant incentives, net interest expense, ground rent amortization, demolition costs, amortization, depreciation, development-related marketing costs and Equity in earnings from Real Estate and Other Affiliates. We use NOI to evaluate our operating performance on a property-by-property basis because NOI allows us to evaluate the impact of these factors which vary by property such as lease structure, lease rates and tenant base have on our operating results, gross margins and investment returns.

Although we believe that NOI provides useful information to investors about the performance of our Operating Assets, due to the exclusions noted above, NOI should only be used as an additional measure of the financial performance of such assets and not as an alternative to GAAP net income. A reconciliation of Operating Assets NOI to Operating Assets EBT has been presented in the table below to provide the most comparable GAAP measure. Variances between years in NOI typically result from changes in rental rates, occupancy, tenant mix and operating expenses. Please refer to our Operating Assets NOI by property and Operating Assets EBT in the tables below for the years ended December 31, 2017, 2016 and 2015.

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Operating Assets NOI and EBT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

2017-2016

 

2016-2015

(In thousands)

 

2017

  

2016

  

2015

 

Change

 

Change

Retail

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Woodlands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Creekside Village Green (a)

 

$

1,893

 

$

1,616

 

$

877

 

$

277

 

$

739

Hughes Landing Retail (a)

 

 

3,733

 

 

3,564

 

 

1,548

 

 

169

 

 

2,016

1701 Lake Robbins (b)

 

 

284

 

 

381

 

 

418

 

 

(97)

 

 

(37)

20/25 Waterway Avenue

 

 

1,837

 

 

1,844

 

 

1,978

 

 

(7)

 

 

(134)

Waterway Garage Retail

 

 

719

 

 

671

 

 

722

 

 

48

 

 

(51)

2000 Woodlands Parkway

 

 

(94)

 

 

(51)

 

 

 —

 

 

(43)

 

 

(51)

Columbia

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Columbia Regional

 

 

1,536

 

 

1,467

 

 

1,415

 

 

69

 

 

52

Seaport District

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Seaport District NYC -  Historic Area / Uplands (c)

 

 

(1,452)

 

 

92

 

 

 —

 

 

(1,544)

 

 

92

Summerlin

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Downtown Summerlin (a)

 

 

17,950

 

 

16,632

 

 

10,117

 

 

1,318

 

 

6,515

Ward Village

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ward Village Retail (d)

 

 

20,576

 

 

22,048

 

 

25,566

 

 

(1,472)

 

 

(3,518)

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lakeland Village Center at Bridgeland (a)

 

 

782

 

 

190

 

 

 —

 

 

592

 

 

190

Outlet Collection at Riverwalk

 

 

5,879

 

 

5,125

 

 

6,450

 

 

754

 

 

(1,325)

Total Retail NOI

 

 

53,643

 

 

53,579

 

 

49,091

 

 

64

 

 

4,488

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Office

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Woodlands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One Hughes Landing

 

 

6,168

 

 

6,276

 

 

5,547

 

 

(108)

 

 

729

Two Hughes Landing (e)

 

 

5,790

 

 

5,271

 

 

4,650

 

 

519

 

 

621

Three Hughes Landing

 

 

(623)

 

 

(514)

 

 

 —

 

 

(109)

 

 

(514)

1725 Hughes Landing Boulevard (a)

 

 

3,531

 

 

200

 

 

(198)

 

 

3,331

 

 

398

1735 Hughes Landing Boulevard (a)

 

 

7,509

 

 

3,041

 

 

(18)

 

 

4,468

 

 

3,059

2201 Lake Woodlands Drive (a)

 

 

(32)

 

 

(121)

 

 

(138)

 

 

89

 

 

17

9303 New Trails (f)

 

 

1,171

 

 

1,721

 

 

1,993

 

 

(550)

 

 

(272)

3831 Technology Forest Drive

 

 

2,268

 

 

2,051

 

 

2,044

 

 

217

 

 

 7

3 Waterway Square

 

 

6,709

 

 

7,033

 

 

6,588

 

 

(324)

 

 

445

4 Waterway Square

 

 

6,473

 

 

6,749

 

 

6,048

 

 

(276)

 

 

701

1400 Woodloch Forest

 

 

1,781

 

 

1,794

 

 

1,703

 

 

(13)

 

 

91

Columbia

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10-70 Columbia Corporate Center (g)

 

 

11,568

 

 

11,862

 

 

12,947

 

 

(294)

 

 

(1,085)

Columbia Office Properties (h)

 

 

1,002

 

 

(6)

 

 

550

 

 

1,008

 

 

(556)

One Mall North

 

 

1,900

 

 

78

 

 

 —

 

 

1,822

 

 

78

One Merriweather (c)

 

 

1,499

 

 

 —

 

 

 —

 

 

1,499

 

 

 —

Two Merriweather (c)

 

 

(141)

 

 

 —

 

 

 —

 

 

(141)

 

 

 —

Summerlin

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ONE Summerlin (a)

 

 

3,898

 

 

2,365

 

 

(206)

 

 

1,533

 

 

2,571

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

110 North Wacker (i)

 

 

723

 

 

6,105

 

 

6,100

 

 

(5,382)

 

 

 5

Total Office NOI

 

 

61,194

 

 

53,905

 

 

47,610

 

 

7,289

 

 

6,295

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Multi-family

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Woodlands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Millennium Six Pines Apartments

 

 

3,579

 

 

1,498

 

 

 —

 

 

2,081

 

 

1,498

Millennium Waterway Apartments (j)

 

 

3,208

 

 

3,183

 

 

4,169

 

 

25

 

 

(986)

One Lakes Edge (a)

 

 

5,324

 

 

3,651

 

 

994

 

 

1,673

 

 

2,657

Summerlin

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Constellation Apartments (k)

 

 

15

 

 

 —

 

 

 —

 

 

15

 

 

 —

Seaport District

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

85 South Street (l)

 

 

194

 

 

523

 

 

494

 

 

(329)

 

 

29

Total Multi-family NOI

 

 

12,320

 

 

8,855

 

 

5,657

 

 

3,465

 

 

3,198

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hospitality

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Woodlands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Embassy Suites at Hughes Landing (m)

 

 

4,816

 

 

3,563

 

 

(25)

 

 

1,253

 

 

3,588

The Westin at The Woodlands (m)

 

 

6,189

 

 

1,739

 

 

 —

 

 

4,450

 

 

1,739

The Woodlands Resort & Conference Center (n)

 

 

8,740

 

 

7,591

 

 

10,560

 

 

1,149

 

 

(2,969)

Total Hospitality NOI

 

 

19,745

 

 

12,893

 

 

10,535

 

 

6,852

 

 

2,358

Total Retail, Office, Multi-family, and Hospitality NOI

 

 

146,902

 

 

129,232

 

 

112,893

 

 

17,670

 

 

16,339

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Woodlands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Woodlands Ground leases

 

 

1,608

 

 

1,461

 

 

1,230

 

 

147

 

 

231

The Woodlands Parking Garages

 

 

(178)

 

 

(417)

 

 

(483)

 

 

239

 

 

66

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Properties (o) (c)

 

 

894

 

 

1,012

 

 

1,431

 

 

(118)

 

 

(419)

Total Other NOI

 

 

2,324

 

 

2,056

 

 

2,178

 

 

268

 

 

(122)

44

Table of Contents

 

 

Year Ended December 31,

 

2017-2016

 

2016-2015

(In thousands)

 

2017

  

2016

  

2015

 

Change

 

Change

Operating Assets NOI excluding properties sold or in redevelopment

 

$

149,226

 

$

131,288

 

$

115,071

 

$

17,938

 

$

16,217

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redevelopments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Seaport District

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Seaport District NYC -  Historic Area / Uplands (c)

 

$

 —

 

$

(589)

 

$

(2,692)

 

$

589

 

$

2,103

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Landmark Mall (p)

 

 

 —

 

 

(676)

 

 

(347)

 

 

676

 

 

(329)

Total Operating Assets Redevelopments NOI

 

 

 —

 

 

(1,265)

 

 

(3,039)

 

 

1,265

 

 

1,774

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dispositions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Woodlands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Club at Carlton Woods

 

 

 —

 

 

 —

 

 

(942)

 

 

 —

 

 

942

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Park West (q)

 

 

(60)

 

 

1,835

 

 

1,812

 

 

(1,895)

 

 

23

Cottonwood Square

 

 

750

 

 

705

 

 

677

 

 

45

 

 

28

Total Operating Assets Dispositions NOI

 

 

690

 

 

2,540

 

 

1,547

 

 

(1,850)

 

 

993

Total Operating Assets NOI - Consolidated

 

$

149,916

 

$

132,563

 

$

113,579

 

$

17,353

 

$

18,984

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Straight-line rent amortization (r)

 

 

7,999

 

 

10,689

 

 

7,391

 

 

(2,690)

 

 

3,298

Demolition costs (s)

 

 

(1,605)

 

 

(194)

 

 

(2,412)

 

 

(1,411)

 

 

2,218

Development-related marketing costs

 

 

(3,346)

 

 

(947)

 

 

(7,934)

 

 

(2,399)

 

 

6,987

Provision for impairment (q)

 

 

 —

 

 

(35,734)

 

 

 —

 

 

35,734

 

 

(35,734)

Depreciation and Amortization (t)

 

 

(122,421)

 

 

(86,313)

 

 

(89,075)

 

 

(36,108)

 

 

2,762

Write-off of lease intangibles and other

 

 

(575)

 

 

(25)

 

 

(671)

 

 

(550)

 

 

646

Other income, net (u)

 

 

(315)

 

 

4,601

 

 

524

 

 

(4,916)

 

 

4,077

Equity in earnings (loss) from Real Estate Affiliates

 

 

3,267

 

 

2,802

 

 

1,883

 

 

465

 

 

919

Interest, net

 

 

(61,584)

 

 

(50,427)

 

 

(32,931)

 

 

(11,157)

 

 

(17,496)

Total Operating Assets segment EBT (v)

 

$

(28,664)

 

$

(22,985)

 

$

(9,646)

 

$

(5,679)

 

$

(13,339)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Assets NOI - Equity and Cost Method Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Woodlands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Millennium Six Pines Apartments (w)

 

$

 —

 

$

1,537

 

$

1,414

 

$

(1,537)

 

$

123

Stewart Title of Montgomery County, TX

 

 

1,329

 

 

1,977

 

 

2,007

 

 

(648)

 

 

(30)

Woodlands Sarofim # 1

 

 

901

 

 

1,541

 

 

1,496

 

 

(640)

 

 

45

Columbia

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Metropolitan Downtown Columbia

 

 

5,858

 

 

4,137

 

 

1,194

 

 

1,721

 

 

2,943

Summerlin

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 —

Constellation (k)

 

 

1,549

 

 

(108)

 

 

 —

 

 

1,657

 

 

(108)

Las Vegas 51s (w)

 

 

(295)

 

 

68

 

 

305

 

 

(363)

 

 

(237)

Seaport District

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

33 Peck Slip (x)

 

 

 —

 

 

1,347

 

 

 —

 

 

(1,347)

 

 

1,347

Total NOI - equity investees

 

 

9,342

 

 

10,499

 

 

6,416

 

 

(1,157)

 

 

4,083

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments to NOI (y)

 

 

(9,813)

 

 

(9,527)

 

 

(3,069)

 

 

(286)

 

 

(6,458)

Equity Method Investments EBT

 

 

(471)

 

 

972

 

 

3,347

 

 

(1,443)

 

 

(2,375)

Less: Joint Venture Partner's Share of EBT

 

 

(355)

 

 

786

 

 

3,211

 

 

(1,141)

 

 

(2,425)

Equity in earnings (loss) from Real Estate Affiliates

 

 

(116)

 

 

186

 

 

136

 

 

(302)

 

 

50

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions from Summerlin Hospital Investment

 

 

3,383

 

 

2,616

 

 

1,747

 

 

767

 

 

869

Segment equity in earnings from Real Estate and Other Affiliates

 

$

3,267

 

$

2,802

 

$

1,883

 

$

465

 

$

919

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company's Share of Equity Method Investments NOI

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Woodlands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Millennium Six Pines Apartments (w)

 

$

 —

 

$

1,252

 

$

1,151

 

$

(1,252)

 

$

101

Stewart Title of Montgomery County, TX

 

 

665

 

 

989

 

 

1,004

 

 

(324)

 

 

(15)

Woodlands Sarofim # 1

 

 

180

 

 

308

 

 

299

 

 

(128)

 

 

 9

Columbia

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Metropolitan Downtown Columbia

 

 

2,929

 

 

2,069

 

 

597

 

 

860

 

 

1,472

Summerlin

 

 

 

 

 

 

 

 

 

 

 

 —

 

 

 —

Constellation (k)

 

 

775

 

 

(54)

 

 

 —

 

 

829

 

 

(54)

Las Vegas 51s (w)

 

 

(148)

 

 

34

 

 

153

 

 

(182)

 

 

(119)

Seaport District

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

33 Peck Slip (x)

 

 

 —

 

 

471

 

 

 —

 

 

(471)

 

 

471

Company's share NOI - equity investees

 

$

4,401

 

$

5,069

 

$

3,204

 

$

(668)

 

$

1,865

45

Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

Economic

 

 

December 31, 2017

(In thousands)

 

Ownership

 

 

Total Debt

 

Total Cash

The Woodlands

 

 

 

 

 

 

 

 

 

 

Stewart Title of Montgomery County, TX

 

 

50.00

%

 

$

 —

 

$

139

Woodlands Sarofim # 1

 

 

20.00

 

 

 

5,282

 

 

688

Columbia

 

 

 

 

 

 

 

 

 

 

The Metropolitan Downtown Columbia

 

 

50.00

 

 

 

70,000

 

 

340

(a)

NOI increase for the year ended December 31, 2017 as compared

MANAGEMENT’S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Table of Contents
Index to the same periods in 2016 and 2015 relates to an increase in occupancy and/or effective rent, or relates to properties recently placed in service.

Financial Statements

(b)

The decrease in NOI for the year ended December 31, 2017 as compared to the same period in 2016 is due to the expiration of a lease in October 2016. As of December 31, 2017, the building is 100% leased.

Strategic Developments

(c)

Please refer to discussion in the following sections regarding this property.


(d)

The decrease in NOI at Ward Village for the year ended December 31, 2017 as compared to the same periods in 2016 and 2015 is generally due to the closure and transfer of buildings from Operating Assets to Strategic Developments in anticipation of redevelopment.

(e)

The increase in NOI for the year ended December 31, 2017 as compared to the same period in 2016 is due to bad debt expense for a tenant in 2016. The increase for the year ended December 31, 2016 compared to the same period in 2015 is primarily due to a delinquent tenant who is no longer occupying the space. 

(f)

The decrease in NOI for the year ended December 31, 2017 compared to the same periods in 2016 and 2015 is generally due to a decrease in occupancy due to a tenant relocating to 1725 Hughes Landing Boulevard.

(g)

The decrease in NOI for the year ended December 31, 2017 as compared to the same period in 2016 is generally due to an increase in repairs and maintenance and a termination fee received in April 2016. The decrease in NOI for the year ended 2016 compared to 2015 is due to a slight decline in occupancy and a general decline in rental revenues due to rental rates resetting to lower market rates.

(h)

The NOI increase for the year ended December 31, 2017 as compared to the same period in 2016 is primarily due to increased occupancy at Columbia Association and an overall decrease in operating expenses. The decrease in NOI for the year ended December 31, 2016 as compared to the same period in 2015 is due to a general decline in rental revenue due to rental rates resetting to lower market rates.

(i)

The decrease in NOI is due to our termination of the lease to facilitate redevelopment and tenant rent abatement through the January 2018 lease termination date.

(j)

NOI decrease for the year ended December 31, 2016 as compared to the same period in 2015 is generally due to an increase in concessions to increase occupancy.

(k)

NOI increase for the year ended December 31, 2017 as compared to the same period in 2016 due to the consolidation of Constellation as a result of the buyout of our joint venture partner’s 50% interest on December 28, 2017. The property’s NOI is now included with our 100% owned multi-family properties.

(l)

The decrease in NOI for the year ended December 31, 2017 compared to the same period in 2016 is due to the buyout of a tenant in a rent controlled unit.

(m)

NOI increase for the year ended December 31, 2017 as compared to the same period in 2016 is due to improved occupancy and an increase in revenue per available room.

(n)

The NOI increase for the year ended December 31, 2017 as compared to the same period in 2016 is due to improved occupancy and an increase in revenue per available room. The decrease in NOI for the year ended December 31, 2016 as compared to the same period in 2015 is due to a decrease in occupancy and conference center services.

(o)

NOI decrease for the year ended December 31, 2017 as compared to the same period in 2016 in Other Properties is due to the transfer of the Merriweather Post Pavilion in 2016, offset by the ground lease with a hockey team and consolidation of Las Vegas 51s in 2017.

(p)

Landmark Mall was closed for redevelopment and moved to our Strategic Developments segment as of January 2017.

(q)

Park West was impaired in the third quarter of 2016 prior to its sale in December 2016, and 2017 activity relates to an adjusted increase of property expenses per the terms of the sales agreement.

(r)

Amortization of straight-line rent decreased for the year ended December 31, 2017 as compared to the same period in 2016 primarily due to the write-off of straight-line rent at Ward Village associated with a bankrupt tenant in 2016.

(s)

The demolition costs for the year ended December 31, 2017 relate to the demolition of Ward Warehouse, a portion of Ward Village Retail.

(t)

Increased depreciation and amortization for the year ended December 31, 2017 as compared to the same period in 2016, relates to an increase in the number of operating properties in service as well as accelerated depreciation of $25.5 million reflecting the shorter remaining useful lives for properties pending redevelopment.

(u)

The decrease in other income, net for the year ended December 31, 2017 compared to the same period in 2016 is due to the final participation payments received for TPC Las Vegas and TPC Summerlin in July 2016.

(v)

For a detailed breakdown of our Operating Assets segment EBT, please refer to Note 17 – Segments in the consolidated financial statements.

(w)

NOI variance in Millennium Six Pines and Las Vegas 51s for the year ended December 31, 2017, respectively, as compared to the same period in 2016 is due to the consolidation of the asset as a result of the purchase of our joint venture partners’ interests.

(x)

The 33 Peck Slip hotel was closed for redevelopment at the end of December 2016. Please see further discussion in the Strategic Developments discussion of the Seaport District.

(y)

Adjustments to NOI include straight line-rent and market lease amortization, demolition costs, depreciation and amortization and interest expense, net at our joint venture properties.

46

Table of Contents

Retail Properties

Some of the leases related to our retail properties are triple net leases, which generally require tenants to pay their pro-rata share of property operating costs, such as real estate taxes, utilities and insurance, and the direct costs of their leased space. We also enter into certain leases which require tenants to pay a fixed-rate per square foot reimbursement for common area costs which is increased annually according to the terms of the lease. 

The following table summarizes the leases we executed at our retail properties during the year ended December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Square Feet

 

Per Square Foot per Annum

Retail Properties (a)

 

Total Executed

 

Avg. Lease Term (Months)

 

Total Leased

 

Associated with Tenant Improvements

 

Associated with Leasing Commissions

 

 

Avg. Starting Rents

 

 

Total Tenant Improvements

 

 

Total Leasing Commissions

Pre-leased (b)

 

26

 

112

 

229,889

 

105,501

 

131,493

 

$

53.43

 

$

7.31

 

$

0.97

Comparable - Renewal (c)

 

 9

 

47

 

33,504

 

1,454

 

 —

 

 

31.39

 

 

3.33

 

 

 —

Comparable - New (d)

 

12

 

76

 

33,491

 

20,245

 

15,125

 

 

31.44

 

 

4.13

 

 

2.16

Non-comparable (e)

 

32

 

91

 

136,974

 

120,765

 

117,740

 

 

24.63

 

 

6.94

 

 

0.99

Total

 

 

 

 

 

433,858

 

247,965

 

264,358

 

 

 

 

 

 

 

 

 

(a)

Excludes executed leases with a term of 12 months or less.

(b)

Pre-leased information is associated with our projects under development at December 31, 2017. The majority of our pre-leased retail relates to Seaport District properties in New York where rental rates are higher relative to other geographies.

(c)

Comparable - Renewal information is associated with stabilized assets for which the space was occupied by the same tenant within 12 months prior to the executed agreement. These leases represent an increase in cash rents from $31.26 per square foot to $31.39 per square foot, or 0.4% over previous rents.

(d)

Comparable - New information is associated with stabilized assets for which the space was occupied by a different tenant within 12 months prior to the executed agreement. These leases represent an increase in cash rents from $28.94 per square foot to $31.44 per square foot, or 8.6% over previous rents.

(e)

Non-comparable information is associated with space that was previously vacant for more than 12 months or has never been occupied.

Our retail square feet placed in service in the year ended December 31, 2017 relates to a portion of our Seaport District project, discussed below:

Seaport District

Seaport District NYC - Historic Area/Uplands

The decrease in NOI  for the year ended December 31, 2017 as compared to the same period ended December 31, 2016 in the Seaport District NYC - Historic Area/Uplands (a portion of our larger Seaport District redevelopment project, as discussed further herein in Strategic Developments) primarily relates to an increase in expenses, including operating expenses for Fulton Market Building and for seasonal marketing events, partially offset by rental income from the 46,000 square foot iPic Theater in the newly renovated Fulton Market Building, which opened in the fourth quarter of 2016. Ongoing leasing and redevelopment activities are expected to substantially reposition the approximately 180,000 square feet of retail space in the Uplands in 2018.

Office Properties

All of the office properties, except for 110 North Wacker and ONE Summerlin, are located in Columbia, Maryland or in The Woodlands, Texas. Leases related to our office properties in The Woodlands and 110 North Wacker are generally triple net leases. Leases at properties located in Columbia, Maryland, and ONE Summerlin are generally gross leases.

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The following table summarizes our executed office property leases during the year ended December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Square Feet

 

Per Square Foot per Annum

 

 

 

 

Avg.

 

 

 

Associated

 

Associated

 

Avg.

 

 

Total

 

 

Total

 

 

Total

 

Lease Term

 

Total

 

with Tenant

 

with Leasing

 

Starting

 

 

Tenant

 

 

Leasing

Office Properties (a)

  

Executed

  

(Months)

 

Leased

 

Improvements

  

Commissions

  

Rents (f)

 

 

Improvements

 

  

Commissions

Pre-leased (b)

 

 4

 

156

 

842,367

 

842,367

 

842,367

 

$

49.84

 

$

6.16

 

$

1.06

Comparable - Renewal (c)

 

13

 

55

 

41,242

 

33,439

 

26,730

 

 

28.35

 

 

3.23

 

 

1.26

Comparable - New (d)

 

 7

 

44

 

39,613

 

32,830

 

36,951

 

 

37.28

 

 

4.09

 

 

2.20

Non-comparable (e)

 

54

 

73

 

318,647

 

277,804

 

296,559

 

 

32.17

 

 

8.23

 

 

1.90

Total

 

 

 

 

 

1,241,869

 

1,186,440

 

1,202,607

 

 

 

 

 

 

 

 

 

(a)

Excludes executed leases with a term of 12 months or less.

(b)

Pre-leased information is associated with projects under development at December 31, 2017. 

(c)

Comparable - Renewal information is associated with stabilized assets for which the space was occupied by the same tenant within 12 months prior to the executed agreement. These leases represent a decrease in cash rents from $29.60 per square foot to $28.35 per square foot, or (4.2%) under previous rents.

(d)

Comparable - New information is associated with stabilized assets for which the space was occupied by a different tenant within 12 months prior to the executed agreement. These leases represent a decrease in cash rents from $39.21 per square foot to $37.28 per square foot, or (4.9%) under previous rents.

(e)

Non-comparable information is associated with space that was previously vacant for more than 12 months or has never been occupied.

(f)

Avg. Starting Rents is based on the gross rents, including recoveries.

The following discussions summarize our recently completed or acquired office properties, which were placed in service in 2017:

Columbia

One Merriweather

Located in the Merriweather District, this 202,603 square foot, eight-story multi-tenant Class A office building includes 12,500 leasable square feet of retail and restaurant space, is situated on 1.3 acres of land and was placed in service in 2017. Adjacent to the building on 1.6 acres is a nine-story parking garage which will contain approximately 1,129 spaces. The garage provides parking for One and Two Merriweather. The total development costs are approximately $78 million, inclusive of $15 million in costs for the parking garage (allocated evenly with Two Merriweather), and remaining costs relate to final lease-up and tenant build-out. We expect to reach annual stabilized NOI of approximately $5.1 million in 2020. As of December 31, 2017, the building is 81.3% leased.

Two Merriweather

We began construction on Two Merriweather, a Class A mixed-use office building, in the third quarter of 2016. The project is being delivered in stages, with the first portion placed in service in the fourth quarter of 2017. Two Merriweather consists of approximately 100,000 square feet of office and approximately 30,000 square feet of retail space. Total development costs are expected to be approximately $41 million, of which $29.8 million has been incurred through December 31, 2017. We expect to reach projected annual stabilized NOI of approximately $3.6 million in 2020. As of December 31, 2017, 58.2% of the total project is leased.

Other

The properties that are included in Other Properties in our Operating Assets NOI and EBT table for the years ended December 31, 2017, 2016 and 2015 include the Kewalo Basin Harbor, Merriweather Post Pavilion (until its transfer to the Downtown Columbia Arts and Culture Commission in November 2016), HHC 242 Self-Storage and HHC 2978 Self-Storage for the year ended December 31, 2017 as discussed below, Las Vegas 51s since the consolidation of the property on March 1, 2017, and participation interests in the golf courses at TPC Summerlin and TPC Las Vegas golf courses until the June 2016 receipt of $2.8 million, which represents our final participation payment for these interests.

The following discussions summarize our recently completed self-storage properties, which were placed in service in 2017:

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HHC 242 Self-Storage

Located in Alden Bridge, a neighborhood within The Woodlands, this facility is located on 4.0 acres and comprises 654 units aggregating approximately 82,000 square feet. Total development costs are expected to be approximately $9 million. As expected given a slower lease-up period for self-storage facilities as compared to other assets, we expect to reach annual stabilized NOI of approximately $0.8 million in 2020. The facility opened in the first quarter of 2017, and as of December 31, 2017, the project is 37.0% leased.

HHC 2978 Self-Storage

Located in Alden Bridge, this facility is located on 3.1 acres and comprises 784 units aggregating approximately 79,000 square feet. Total development costs are expected to be approximately $9 million. As expected given a slower lease-up period for self-storage facilities as compared to other assets, we expect to reach annual stabilized NOI of approximately $0.8 million in 2020. The facility opened in the second quarter of 2017, and as of December 31, 2017, the project is 33.9% leased.

Strategic Developments

Our Strategic Developments segment assets generally require substantial future development to maximize their value. Other than our condominium properties, most of the properties and projects in this segment do not generate no revenues. For our condominium projects we currently use percentage of completion accounting to recognize revenues during the construction phase, and apply the full accrual method to sales of units in fully completed buildings. Please see Note 1 – Summary of Significant Accounting Policies in our Consolidated Financial Statements for a discussion of changes in accounting for condominium projects as a result of adoption of the new revenue recognition accounting standard on January 1, 2018. Our expenses relating to Strategic Developmentsthese assets are primarily related to costs associated with constructing the assets, selling condominiums, marketing costs associated with our developments,Strategic Developments, carrying costs such asincluding, but not limited to, property taxes and insurance and other ongoing costs relating to maintaining the assets in their current condition. If we decide to redevelop or develop a Strategic Developments asset, we would expect that with the exception of the residential portion of our condominium projects, upon completion of development, the asset would likely be reclassified to the Operating Assets segment when the asset is placed in service and NOI would become a meaningful measure of its operating performance. All development costs discussed herein are exclusive of land costs.

Total revenues and expenses for the Strategic Developments segment are summarized as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

2017-2016

 

2016-2015

(In thousands)

 

2017

  

2016

  

2015

 

Change

 

Change

Minimum rents

 

$

565

 

$

447

 

$

899

 

$

118

 

$

(452)

Condominium rights and unit sales

 

 

464,251

 

 

485,634

 

 

305,284

 

 

(21,383)

 

 

180,350

Other land, rental and property revenues

 

 

8,206

 

 

455

 

 

1,734

 

 

7,751

 

 

(1,279)

Total revenues

 

 

473,022

 

 

486,536

 

 

307,917

 

 

(13,514)

 

 

178,619

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Condominium rights and unit cost of sales

 

 

338,361

 

 

319,325

 

 

191,606

 

 

19,036

 

 

127,719

Other property operating costs

 

 

19,981

 

 

5,472

 

 

4,673

 

 

14,509

 

 

799

Real estate taxes

 

 

2,662

 

 

2,408

 

 

2,282

 

 

254

 

 

126

Rental property maintenance costs

 

 

560

 

 

359

 

 

476

 

 

201

 

 

(117)

Provision for doubtful accounts

 

 

(2)

 

 

63

 

 

32

 

 

(65)

 

 

31

Demolition costs

 

 

318

 

 

2,018

 

 

885

 

 

(1,700)

 

 

1,133

Development-related marketing costs

 

 

17,158

 

 

21,237

 

 

17,532

 

 

(4,079)

 

 

3,705

Depreciation and amortization

 

 

1,210

 

 

2,744

 

 

3,240

 

 

(1,534)

 

 

(496)

Other income

 

 

(108)

 

 

(611)

 

 

104

 

 

503

 

 

(715)

Gains on sales of properties

 

 

(51,242)

 

 

(140,549)

 

 

 —

 

 

89,307

 

 

(140,549)

Interest expense (income), net (a)

 

 

(25,467)

 

 

(17,437)

 

 

(8,655)

 

 

(8,030)

 

 

(8,782)

Equity in earnings in Real Estate and Other Affiliates

 

 

550

 

 

(10,515)

 

 

(1,838)

 

 

11,065

 

 

(8,677)

Total expenses, net of other income

 

 

303,981

 

 

184,514

 

 

210,337

 

 

119,467

 

 

(25,823)

Strategic Developments segment EBT*

 

$

169,041

 

$

302,022

 

$

97,580

 

$

(132,981)

 

$

204,442


(*)    For a reconciliation of Strategic Developments

Segment EBT The following table presents segment EBT to consolidated income (loss) before taxes, refer to Note 17 – Segments in our Consolidated Financial Statements.

(a)

Negative interest expense amounts are due to interest capitalized in ourfor Strategic Developments segment related to Operating Assets segment debt and to the Senior Notes.

Minimum rents primarily relate to projects that are nearing completion, contribute minimal rental revenue in all years presented and are included in the Strategic Developments segment as the project is not substantially complete.

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The decrease in condominium rights and unit sales for the year ended December 31, 2017 as compared to 2016 is due to less revenues at our Waiea tower, which has sold 94.8% of its units, partially offset by more revenues from Anaha, Ae`o and Ke Kilohana towers. The increase in condominium rights and unit sales for the year ended December 31, 2016 as compared to 2015 related to revenue recognition at our Waiea and Anaha condominium projects for which we began recognizing revenue in 2015 on the percentage of completion basis.

Other land, rental and property revenues increased in 2017 compared to the same period in 2016 and 2015 due to the consolidation of the Home Owners’ Associations (“HOAs”) for the recently opened Waiea and Anaha residential towers in 2017. We expect to transfer control of the HOAs to homeowners in future periods.

Condominium rights and unit costs of sales for the year ended December 31, 2017 represent development and construction costs relating to the revenues recognized on a percentage of completion basis at Anaha, Ae’o and Ke Kilohana and also includes costs related to sales at our Waiea tower which was opened to new homeowners at the end of 2016. Condominium rights and unit costs of sales for the years ended December 31, 2016 and 2015 primarily represent development and construction costs relating31: 

Strategic Developments Segment EBT2022-2021
thousands20222021$ Change
Condominium rights and unit sales$677,078 $514,597 $162,481 
Rental revenue— 319 (319)
Other land, rental and property revenues2,685 5,193 (2,508)
Total revenues679,763 520,109 159,654 
Condominium rights and unit cost of sales(483,983)(414,199)(69,784)
Operating costs(19,001)(19,063)62 
Real estate taxes(1,052)(3,415)2,363 
(Provision for) recovery of doubtful accounts— (21)21 
Total operating expenses(504,036)(436,698)(67,338)
Segment operating income (loss)175,727 83,411 92,316 
Depreciation and amortization(5,319)(6,512)1,193 
Interest income (expense), net17,073 3,701 13,372 
Other income (loss), net1,799 2,536 (737)
Equity in earnings (losses) from unconsolidated ventures868 (221)1,089 
Gain (loss) on sale or disposal of real estate and other assets, net90 13,911 (13,821)
Provision for impairment— (13,068)13,068 
Segment EBT$190,238 $83,758 $106,480 

Strategic Developments segment EBT increased $106.5 million compared to the revenues recognized on a percentage of completion basis at Waiea and Anaha. The book value of condominium rights soldprior-year period primarily due to the ONE Ala Moana joint venture were also recorded asfollowing:
–Condominium sales, net of cost of sales increased $74.4 million, excluding the change in 2015.

Other property operating costs increasedremediation cost of $18.3 million discussed below, driven by the timing and mix of condominium closings. The Company closed on 607 units at a higher average profit in 2017 as2022, including 549 units at Kō‘ula which was completed in the third quarter of 2022, 56 units at ‘A‘ali‘i and the final 2 units at Waiea, compared to 670 units in 2021.

–Condominium cost of sales also decreased $18.3 million due to charges related to the same perioddefect remediation accrual at Waiea. We charged $2.7 million in 2016 and 20152022, related to additional anticipated costs, compared to charges of $21.0 million in 2021.
–Provision for impairment decreased $13.1 million due to the impairment of Century Park in 2021, compared to no strategic asset impairments in 2022.
–Interest income increased $13.4 million primarily due to opening and carrying costs associated with unsold inventory at Waiea and pre-opening costs at Anaha condominium projects, costs associated with various projects under development at the Seaport District, as well as costs associated with the HOAs at Waiea and Anaha as a result of the consolidation of the HOAs for these towerschange in 2017.

Demolition costs decreased in 2017 as compared to 2016 due to costs incurred in 2016 to demolish preexisting structures primarily at Seaport and Ward Village where we have plans to redevelop. Demolition costs increased in 2016 as compared to 2015 for the same reason.

Development-related marketing costs are primarily incurred to enhance our brand, generate demand for our development and redevelopment projects and sustain consumer and industry relationships. For the year ended December 31, 2017, development-related marketing costs decreased compared to 2016 primarily due to less costs incurred at Pier 17, Ae`oand Waiea, offset by costs incurred at `A`ali`i.  For the year ended December 31, 2016, development-related marketing costs increased compared to 2015 primarily due to costs incurred at Pier 17, Ae`oand Waiea.

Depreciation and amortization decreased in 2017 as compared to the same periods in 2016 and 2015 due to the IBM building being transferred to our Operating Assets segment in the second quarter of 2017.

Gains on sales of properties for the year ended December 31, 2017, are primarilyvalue related to the sale of 36 acres of undeveloped land at The Elk Grove Collection,derivative instruments associated with 1700 Pavilion and Tanager Echo.


These increases in EBT were partially offset by the sale of 70 acres of undeveloped land at Kendall Town Center,following:
–Gain on asset sales decreased $13.8 million driven by the sale of Century Plaza, and the sale of the Volo Land. The gross sales price of The Elk Grove Collection was $36.0 million and resulted in a pre-tax gain of $32.2 million. The gross sales price of Kendall Town Center was $40.5 million and resulted in a pre-tax gain of $20.2 million. Century Plaza and Volo Land sold for combined proceeds of $3.6 million and a combined net loss of $1.2 million. Gains on sales of properties for the year ended December 31, 2016 relate to the sale of 80 South Street Assemblage for net cash proceeds of $378.3 million, resultingMonarch City and Century Park in a pre-tax gain of $140.5 million. The 80 South Street Assemblage was a 42,694 square foot lot with 817,784 square feet of available development rights in the Seaport District. 

Interest income, net increased for the year ended December 31, 2017, 2016 and 2015 as2021, compared to prior years as we had more projects under constructionno strategic asset sales in those years and therefore capitalized more of our interest incurred.

Equity in earnings from Real Estate and Other Affiliates for the year ended December 31, 2016 is primarily related to our earnings from the sale of a certain land parcel by our Circle T Ranch and Power Center joint venture in June 2016, which did not recur in 2017. In 2015, our Equity in earnings from Real Estate and Other Affiliates represented our share of the earnings in the ONE Ala Moana condominium venture, in which all of the units available for sale have been sold and closed.

2022.



HHC 2022 FORM 10-K | 52
MANAGEMENT’S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Table of Contents
Index to Financial Statements
Strategic Developments ProjectsThe following describes the status of our major construction projects and announced Strategic Developments projects as of December 31, 2017. For projects that have been under construction2022.

Columbia

Downtown Columbia The Master Plan and zoning for a substantial period and are nearing completion, please refer to the Projects under Construction table below for an update on the project’s individual metrics and associated timeline for completion. For information on the construction financings on our projects, please refer to Note 8 – Mortgages, Notes and

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Loans Payable in our Consolidated Financial Statements.

Downtown Columbia, Redevelopment District

The Downtown Columbia market contains 3.2 million square feet of office space, of which we own 1.6 million square feet, located close to shopping, restaurants and entertainment venues. We believe there is a significant opportunity to redevelop this area over future years. Existing entitlements initially obtained in 2010 andas amended in 2017, totalingallows for a total of approximately 14.0 million14,000,000 square feet for all of Downtown Columbia. Upon completion, the redevelopment of Downtown Columbia Redevelopmentwill include three neighborhoods, Lakefront District, have densities for up to 6,200Merriweather District and Central District, and will feature residential, units, 4.3 million square feet of commercial office, space, 1.3 million square feet ofhotel, retail, spacecultural and 640 hotel rooms.public uses including public parks and trails. The majority of these entitlements existthe properties will be developed on raw land, surface parking lots and other assets controlled by us. We have been advised that these entitlements have no expiration date under Maryland law.

PursuantHHC. Based on the Development Rights and Responsibilities Agreement, signed in 2018 with the County, the existing Master Plan, zoning and project approval process cannot be amended for a period of 30 years. Additionally, pursuant to a 2010 development agreement, with General Growth Properties, Inc., we have a preferred residential and office development covenant that provides us the right of first offer for new development densities of both residential and office space within the Columbia Mall Ring Road. This covenant expires in 2030. The development agreement contains the key terms, conditions, responsibilities and obligations with respect to future development of this area within the greater Downtown Columbia Redevelopment District.


We are continuing predevelopment activitiescurrently focusing on our third neighborhood within the Downtown Columbia Redevelopmentredevelopment of the Merriweather and Lakefront Districts. At the Merriweather District, we completed construction on Marlow, a 472-unit multi-family property, in the fourth quarter of 2022. At the Lakefront District, and expect approvalwe began construction on a final Development Plan for that areaSouth Lake Medical Office Building, an 86,000 square foot medical office property, in the first half of 2018.

Tax increment financing (“TIF”) bonds

In November 2016, the Howard County Council authorized the issuance of up to $90.0 million of TIF bonds for the Downtown Columbia Redevelopment District’s master plan. The Final Limited Offering Memorandum for the first tranche relates to the Merriweather District, and closing on the $48.2 million of Series 2017 A Special Obligation Bonds (“Phase One Bonds”) occurred in October 2017. As part of the legislation approved concurrently with TIF legislation in 2016, an additional 744 residential units may be constructed for the local community to provide for affordable housing needs, which would, if built, increase the previous density to over 6,200 residential units. The TIF will provide capital for the development of key roads and infrastructure supporting our local office buildings and other commercial development within the Merriweather District. The Phase One Bonds are secured by incremental property taxes from the anticipated increased assessed values of specified properties in the Downtown Columbia Development District, and “Special Taxes” which may be levied if necessary to fund the debt service and other costs of the bonds in the event there is a shortfall in the projected property tax increment. We, through our wholly-owned subsidiaries, currently own the majority of the acreage in the Development District, and all of the developable land within the “Special Taxing District.” In the Funding Agreement for the TIF, one of our wholly-owned subsidiaries, The Howard Research and Development Corporation, has agreed to complete certain defined public improvements and to indemnify Howard County, and we have guaranteed these obligations, with a limit of $1.0 million, expiring 36 months after bond issuance.

m.flats/TEN.M

We are a 50% partner with Kettler, Inc. (“Kettler”) to construct a 437-unit, Class A multi-family project with 29,000 square feet of ground floor retail, which is adjacent to The Metropolitan Downtown Columbia in Columbia, Maryland. Construction on the project, which began in the firstthird quarter of 2016, includes two separate buildings, m.flats2022, and TEN.M. Kettler provides construction and property management services for the development. In September 2017, we completed construction of TEN.M and residents began taking occupancy. We anticipate project completion of m.flats in the first quarter of 2018. We expect the property to reach projected annual stabilized NOI of approximately $7.9 million at the end of 2019, of which our share would be $3.9 million.2024. Total development costs are expected to be approximately $109$44.8 million, and costs incurred through December 31, 2017 were approximately $96.9 million. The project iswhich will be partially financed with an $88.0 milliona construction loan which is non-recourse to us.

Three Merriweather and shared parking garage – In 2017, we announced construction of Three Merriweather, a 12-story, Class A mixed-use office building. Construction is expected to beginclose in the first half of 2018, with planned completion of the project in the third quarter of 2019. Three Merriweather will consist of approximately 307,000 rentable square feet of office and 13,000 square feet of retail space. Building amenities will include a rooftop terrace with conference and meeting space that overlooks the Merriweather Post Pavilion concert venue and a fitness center at the ground level with direct access to the 100-

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mile running and biking pathway network throughout Columbia. A 9‐level parking garage that will provide parking for the office, retail and community events and will be constructed in two phases as part of the project for a total of approximately 2,000 spaces at completion. Total development costs are expected to be approximately $138 million, and we expect to obtain construction financing during the first half of 2018. As of December 31, 2017 approximately 50%, of the building is pre-leased to Tenable, Inc. We expect to reach annual stabilized NOI of approximately $9.2 million in 2023.

The Woodlands

100 Fellowship Drive

In November 2016, we entered into a build-to-suit arrangement to develop a three-story, 203,000 rentable square foot medical building with approximately 550 surface parking spaces. The building is 100% pre-leased as of December 31, 2017. Total development costs are expected to be approximately $63 million. We began construction in the second quarter of 2017 and anticipate project completion in the second quarter of 2019. We expect to reach projected annual stabilized NOI of $5.1$3.2 million by 2027.


Bridgeland

Wingspan Wingspan will be a 263-unit single-family rental community in 2019. The project is financedBridgeland situated on approximately 28.8 acres. This new product type will offer one- to four-bedroom units with a $51.4 million construction loan, which is non-recourse to us.

Creekside Park Apartments

In March 2017, we commenced construction of Creekside Park Apartments, a 292-unit apartment complex offering the first rental product in Creekside Park Village Center. Construction completionsingle-family home benefits including private outdoor spaces and grand opening is expected in the third quarter of 2018.attached garages. Total development costs are expected to be approximately $42$86.5 million, andwhich will be funded in large partpartially financed with a $30.0$54.1 million increase to The Woodlands Master Credit Facility completedconstruction loan that closed in April 2017 (describedDecember 2022. We began construction in Note 8 – Mortgages, Notesthe second quarter of 2022 and Loan Payable).anticipate project completion in 2024. We expect to reach projected annual stabilized NOI of $3.5$4.9 million in 2019.

Lake Woodlands Crossing Retail

Construction of Lake Woodlands Crossing Retail began during the fourth quarter of 2017 with completion expected in the fourth quarter of 2018. The centerby 2026.


Summerlin

Tanager Echo Tanager Echo will be approximately 60,300 rentable retail square feet consistinga 294-unit multi-family property located in Downtown Summerlin, comprised of 25,000 square feet of anchor space, 10,000 square feet of junior anchor spacestudio, one and 25,300 square feet of inline and restaurant space. The project is situated on 7.7 acres and is in close proximity to Market Street and The Woodlands Mall within The Woodlands Town Center.two-bedroom units. Total development costs are expected to be approximately $15 million.$86.9 million, which will be partially financed with a $59.5 million construction loan that closed in September 2021. We began construction in the second quarter of 2021 and anticipate project completion in the first quarter of 2023. We expect to reach projected annual stabilized NOI of approximately $1.7$5.9 million in the fourth quarter of 2020. As of December 31, 2017, the project is 63.7% pre-leased, and we obtained a $15.5 million construction loan on January 25, 2018.  The loan has a 50% repayment guaranty until construction is complete, at which point the repayment guaranty will drop to 15% provided the property is 90% leased.

Bridgeland

Bridgeland Apartments

Bridgeland Apartments is our first apartment complex within Bridgeland. The projectby 2026.


Summerlin South Office Summerlin South Office will be a 312-unit, multi-family development located at the northeast corner of Bridgeland Creek Parkway and Mason Road, situated on approximately 15.0 acres. The project is comprised of two, four-story garden style buildings, comprising 192 units and 12 townhome style buildings consisting of 120 units. The project also offers the best in class finishes and amenities unique to the market which would include a 24/7 fitness center, clubhouse with full kitchen, pool, pet care center, storage and children’s area. Construction is expected to begin in the second quarter of 2018, with completion anticipated in the fourth quarter of 2019. We are currently seeking construction financing for this project.147,000 square foot office property. Total development costs are expected to be approximately $48.4$53.9 million, and we expectwhich will be partially financed with a construction loan expected to reach annual stabilized NOI of approximately $3.7 millionclose in the third quarter of 2022.

Seaport District

The revitalization of Lower Manhattan into a media and entertainment hub continues in our Seaport District, which encompasses seven buildings spanning several city blocks along the East River waterfront including (i) the Uplands, which is west of the FDR Drive and consists of approximately 183,000 square feet of retail space, including the 100,000 square foot Fulton Market Building, a portion of which was placed in service2023. We began construction in the fourth quarter of 2016 (see discussion in the Operating Assets segment),2022 and (ii) approximately 213,000 square feet of experiential retail, studio and creative office space at Pier 17, with an additional approximate 53,000 square feet at the Tin Building located east of the FDR Drive, all of which is under

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development and discussed further below.

Pier 17 and Tin Building

Construction on Pier 17 continues, and the openings of various components of Pier 17 are expected throughout 2018. On October 9, 2017, we announced that ESPN’s studio provider NEP Imaging Group, LLC (“ESPN”) will occupy 19,000 square feet of rentable space on the third floor of Pier 17 through a long-term lease. ESPN expects to begin broadcasting in April 2018 and will be joined by the culinary experiences of restaurants managed by Jean-Georges Vongerichten and the Momofuku Group led by David Chang on the first floor. Pier 17 will feature dynamic food offerings and retail on the first two levels, office, studio, and event space on levels three and four, and a 1.5-acre rooftop featuring an outdoor event and entertainment venue for a summer concert series, private events, community open space and a vibrant winter village.

In January 2017, we executed a ground lease amendment with the City of New York, incorporating the Tin Building into our leased premises and modifying other related provisions. As part of the Tin Building redevelopment, important historical elements are being salvaged and catalogued during the building’s deconstruction. We will reconstruct the platform pier where the Tin Building currently sits and restore the building. Theanticipate project includes construction of turn-key, interior fit-out for the Food Hall space, also leased by Jean-Georges Vongerichten, which will feature a variety of fresh specialty foods, seafood, exceptional dining experiences and other products.

In February 2018, we executed an agreement with an affiliate of Noho Hospitality Group, cofounded by two-time James Beard award-winning chef, Andrew Carmellini, to open a new restaurant in 2019 in Pier Village that will total approximately 11,000 square feet.  We also negotiated multi-year agreements with Ticketmaster and Heineken (through NYC Seaport SP Group, LLC). As the Exclusive Ticketing Partner of the Pier 17 rooftop, Ticketmaster will provide ticketing services for the rooftop. Heineken will be a Founding Sponsor of the Seaport District and activate the property with unique consumer experiences.

33 Peck Slip

In January 2016, we entered into a joint venture with Grandview SHG, LLC to purchase an operating hotel totaling 43,889 square feet located at 33 Peck Slip in the Seaport District of New York. We advanced a bridge loan of $25.0 million at a 5.0% interest rate to the joint venture at closing to expedite the acquisition, which was repaid in full in June 2016 upon completion of a refinancing of the property with a $36.0 million redevelopment loan. Our total investment in the joint venture is $8.7 million as of December 31, 2017, which represents our 35% ownership share of the total equity in the project. Under the terms of the joint venture agreement, cash will be distributed to the members as follows: (1) each member will be paid a 6.5% preferred return on their initial invested capital and will be repaid their initial invested capital; and (2) all remaining cash will be distributed 50% to us and 50% to the other members. The 33 Peck Slip hotel was closed at the end of December 2016 for redevelopment and construction began in January 2017. We anticipate completion in the second quarter of 2018 and expect the 66-room, renovated hotel to be an added amenity to the Seaport District experience. Total costs of the project are expected to be approximately $67 million, and as of December 31, 2017, $59.7 million of costs have been incurred by the joint venture. We expect stabilized NOI to be $3.4 million, of which $1.2 million is our share. 

Summerlin

Aristocrat

In the second quarter of 2017, we entered into a build-to-suit arrangement with Aristocrat Technologies, a global leader in gaming solutions, and commenced construction of a corporate campus located less than four miles from Downtown Summerlin. The campus will be situated on approximately 12 acres, will include two office buildings of approximately 90,000 square feet each and is 100% pre-leased. Construction began in June 2017, with core and shell completion anticipated in the second quarter of 2018 and an opening in the fourth quarter of 2018. Total development costs are expected to be approximately $47 million, and in the fourth quarter of 2017, we closed on a $64.6 million financing for this project in conjunction with the financing of Two Summerlin, discussed below, of which $31.1 million is allocated to Aristocrat.2023. We expect to reach projected annual stabilized NOI of $4.1$4.3 million in the first quarter of 2019.

Downtown Summerlin Area

Summerlin’s developing urban core is comprised of nearly 400 acres and is centrally located within Summerlin with easy

by 2026.

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Table of Contents

access to the Las Vegas Valley’s 215 Beltway. It is currently home to our Downtown Summerlin retail asset, an approximately 106-acre fashion, dining and entertainment venue, and the new City National Arena, home to the Las Vegas Golden Knights NHL team’s practice facility. There are approximately 170 acres of land available for development.

Downtown Summerlin Apartments – We commenced construction on Downtown Summerlin Apartments in the first quarter of 2018. The project will be a 267-unit, multi-family development in Downtown Summerlin, situated on approximately 9.0 acres, in close proximity to our Downtown Summerlin retail venue. The project is comprised of three garden–style, walk–up residential buildings with elevators, surface parking, 22 tuck under garages, a clubhouse with an attached pool and an amenity area. We anticipate obtaining construction financing of approximately $44.1 million during the first quarter of 2018. Total development costs are expected to be approximately $59 million. We expect to complete this project in the third quarter of 2019 and reach projected annual stabilized NOI of approximately $4.4 million in the third quarter of 2020.

Las Vegas Ballpark – In October 2017, we announced the development of a new ballpark for our wholly-owned Las Vegas 51s Triple-A professional baseball team and signed a 20-year, $80.0 million naming rights agreement for the future stadium with the Las Vegas Convention and Visitor’s Authority. The approximately 10,000-fan capacity ballpark will be located on 9 acres in the Downtown Summerlin area and serve as another amenity for the rapidly growing retail and entertainment destination in the heart of Summerlin’s urban core. During the first half of 2018, we expect to continue to complete predevelopment activities, finalize the development budget and construction timeline, and obtain construction financing.

Two Summerlin – During the second quarter of 2017, we commenced construction of our second office building in Downtown Summerlin and expect completion by the end of the third quarter of 2018. The Class A office building will be approximately 145,000 square feet, with an adjacent 424-space parking structure, situated on approximately four acres, it will be located just east of Downtown Summerlin and adjacent to land which we ground lease to the NHL practice facility, which is in close proximity to our Downtown Summerlin retail venue. This office building will be the first office project we have developed within our 200-acre master parcel across from Downtown Summerlin and will initiate development of our planned 1.2 million square feet of office, 77,000 square feet of neighborhood retail and 4,000 residential units. Total development costs for Two Summerlin are expected to be approximately $49 million. In the fourth quarter of 2017, we closed on a $64.6 million financing for this project in conjunction with the financing of Aristocrat, discussed above, of which $33.5 million is allocated to Two Summerlin. We expect to reach projected annual stabilized NOI of approximately $3.5 million in 2020, and the building is 22.0% pre-leased as of December 31, 2017, of which 11.0% is intended for use by our local operations.

Ward Village


We continue to transform Ward Village into a vibrant neighborhood offering unique retail experiences, dining and entertainment, along with exceptional residences and workforce housing set among open public spaces and pedestrian-friendly streets. We believe we have found the optimal mix of price point and product in the Honolulu market for condominium development as evidenced by the demand for our condominium projects discussed below. The ongoing and completed construction at our four mixed-use condominium projects includes the construction of approximately 114,500197,779 square feet of new retail to serve our new residents and the community at large. In addition, during the last half of 2017, we have removed 226,466 square feet of old retail space from service to prepare it for redevelopment. Many of the tenants occupying the closed space have been relocated within Ward Village. As we move forward withprogress the executionbuildout of ourthe master plan, which ultimately contemplates a total of approximately 1.01,000,000 million square feet of retailcommercial space at completion, we will periodically redevelop, reposition, or replace the older existing retail space and replace itspaces as part of new mixed-use projects.


HHC 2022 FORM 10-K | 53
MANAGEMENT’S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Table of Contents
Index to Financial Statements
Condominium Projects Delivered or Under Construction

revenue is recognized when construction of the condominium tower is complete and unit sales close, leading to potentially significant variability in revenue recognized between periods. Sales contracts for condominium units are subject to a 30-day rescission period, and the buyers are typically required to make an initial deposit at signing and an additional deposit 30 days later at which point their total deposit becomes non-refundable. Buyers are typically then required to make a final deposit within approximately 90 days of our receipt of their second deposit. Certain buyers are required to deposit the remainder of the sales price on a predetermined pre-closing date, which is specified in the sales contracts for each condominium project.

Contracted amounts disclosed below represent sales that are past the 30-day rescission period.

54


During 2022, we launched presales at Ulana Ward Village and Kalae, achieved 100% presold status at Victoria Place, achieved 100% sold status at Waiea, completed construction and began welcoming residents at Kō‘ula, and began construction at The Park Ward Village. Subsequent to year end, we began construction at Ulana Ward Village.

Table of Contents


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ward Village Condominiums as of December 31, 2017

 

($ in millions)

    

Total Units

    

Closed or Under Contract

    

Percent of Units Sold

 

Total Projected Costs

 

Costs Paid to Date

 

Estimated
Completion
Date

 

Waiea

 

174

 

165

 

94.8

%

 

$

424.6

 

$

391.6

 

Opened

(a)

Anaha

 

317

 

309

 

97.5

 

 

 

401.3

 

 

371.7

 

Opened

(b)

Ae`o

 

466

 

422

 

90.6

 

 

 

428.5

 

 

222.3

 

Q1 2019

 

Ke Kilohana

 

424

 

390

 

92.0

 

 

 

218.9

 

 

64.9

 

2019

 

Total under construction

 

1,381

 

1,286

 

93.1

%

 

$

1,473.3

 

$

1,050.5

 

 

 

(a)

Waiea opened and residents began occupying units in November 2016. We have closed on 159 units as of December 31, 2017.

(b)

Anaha opened and residents began occupying units in October 2017. We have closed on 305 units as of December 31, 2017.

Waiea –AsCompleted Condominiums As of December 31, 2017,2022, our six completed towers are 98.3% sold with 31 units remaining to be sold at ‘A‘ali‘i and 15 units remaining to be sold at Kō‘ula. Ae‘o, Ke Kilohana, Anaha and Waiea are completely sold.


Condominiums Under Construction As of December 31, 2022, 95.1% of the units at our two towers under construction, Victoria Place and The Park Ward Village, are under contract. We launched public presales of our seventh condominium project, Victoria Place, in December 2019 and broke ground in February 2021. Victoria Place will be a 40-story, 349-unit condominium project and will include one, two and three-bedroom residences. As of December 31, 2022, Victoria Place is 100.0% presold.

We launched public presales of our eighth condominium project, The Park Ward Village, in July 2021 and broke ground in October 2022. The Park Ward Village will be a 41-story, 545-unit condominium project and will include studio, one, two and three-bedroom residences. As of December 31, 2022, we have entered into contracts for 165501 units, representing 91.9% of the 174 unitstotal units.

Predevelopment Condominiums In 2021, HHC announced plans for our ninth condominium project, Ulana Ward Village. This mixed-use residence will consist of 696 studio, one-, two- and closed on 159 of thosethree-bedroom units. All units under contract represent 94.8% of total units and 89.9% of the total residential square feet available for sale. Total development costs are expected to be approximately $425 million, which includes $12.6 million of development-related marketing costs that were expensed as incurred. We have recognized 100% of the revenue and costs for on units that have either closed or are under qualifying contracts under the percentage-of-completion method. Remaining costs to complete primarily relate to the finish out of the remaining unsold units. The retail portion of the project is 100% leased and will be placed in service by the end of the second quarter of 2018.

Anaha – In 2014, we began construction of Anaha, and opened the condominium tower during the fourth quarter of 2017, with the initial residents taking occupancy at that time. Additionally, we have leased 58.5% of the 16,100 square feet of retail space. As of December 31, 2017, 309 of the 317 total units were closed or under contract. These contracted sales represent 97.5% of total units and 94.3% of the total residential square feet available for sale. Total development costs are expected to be approximately $401 million, which includes $8.6 million of development-related marketing costs that are being expensed as incurred. Remaining costs to complete primarily relate to punch list items and unsold units. During 2015, we met all the necessary requirements to begin recognizing revenue on the percentage of completion basis.

Ae`o – In February 2016, we began construction of the 389,000 square foot Ae`o tower and the 68,300 square feet of retail, primarily comprised of a 57,000 square foot Whole Foods Market, located on the same block. We expect to complete development of the entire project by early 2019. Total development costs are expected to be approximately $429 million. As of December 31, 2017, 422 of the 466 total units were under contract, representing 90.6% of total units and 87.5% of the total residential square feet available for sale. During the second quarter of 2017, we satisfied all requirements to begin recognizing revenue on the percentage of completion basis. As of December 31, 2017, the project was approximately 64.9% complete.

Ke Kilohana – In October 2016, we began construction of Ke Kilohana and anticipate completion in 2019. The tower will consist of 424 residences, 375 of which are designated as workforce housing units and are being offered to local residents of Hawai‘i who meet certain maximum income and net worth requirements. Total development costs are expected to be approximately $219 million. Public pre-sales on the workforce units began in the first quarter of 2016, and 100% of those units were under contract by the end of July 2016. The market rate units began public pre-sales in July 2016. As of December 31, 2017, we sold 15 of the 49 market units, and we expect to sell the remainder over the next two years. All units under contract represent 92.0% of the total units and 88.2% of the total residential square feet available for sale. As previously announced,2022, we have pre-leased approximately 22,000 square feet, 100%entered into contracts for 676 units, representing 97.1% of the available retail space, to CVS/Longs Drugs on the ground floortotal units. Construction began at Ulana Ward Village in January 2023.


We launched public presales of Ke Kilohana. During the first quarterour tenth condominium project, Kalae, in September 2022. This will be a 38-story, 329-unit condominium project and will consist of 2017, we met all the necessary requirements to begin recognizing revenue on the percentage of completion basis.one-,two- and three-bedroom residences. As of December 31, 2017, the project was approximately 36.6% complete.

Kewalo Basin Harbor - Kewalo Basin Harbor is a harbor that leases slips for charter, commercial fishing and recreational vessels. It is located in Honolulu across Ala Moana Boulevard from Ward Village. In August 2014,2022, we have entered into a 35-year lease with a 10-year extension option with the Hawaii Community Development Authority (“HCDA”) to make improvements, manage, and serve as the operatorcontracts for 240 units, representing 72.9% of Kewalo Basin Harbor. During the third quarter of 2017, we began capital improvement activities and completion is expected in 2019. The planned improvements include replacement of the existing pier decking, improved security features and upgraded access to utilities. These modernization efforts focus on achieving a market-leading boating facility to drive occupancy. Total development costs are expected to be approximately $23 million, and in the third quarter of 2017, we closed on an $11.6 million partial recourse construction loan to finance this project. We anticipate annual stabilized NOI of approximately $1.5 million in the first quarter of 2020.

total units.


55


HHC 2022 FORM 10-K | 54

MANAGEMENT’S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Table of Contents
Index to Financial Statements

Table of Contents

Gateway Towers – Construction of the two towers will be subject to obtaining an acceptable level of pre-sales and financingThe following provides further details for the projects. Pre-sales for the first residential tower containing 125 units began in July 2015. As expected, contracted unit sales in this tower have been slower than Waiea, Anaha and Ae 'o because the pricing and marketing of these units is targeted towards a significantly smaller segment of the market. We have incurred $16.2 million of predevelopment costs for the first towerWard Village as of December 31, 20172022:

Units ClosedUnits Under ContractTotal UnitsTotal % of Units Closed or Under ContractTotal % of Residential Square Feet Closed or Under ContractCompletion Date
Completed
Waiea(a)177 — 177 100.0 %100.0 %Q4 2016
Anaha(a)317 — 317 100.0 %100.0 %Q4 2017
Ae‘o(a)465 — 465 100.0 %100.0 %Q4 2018
Ke Kilohana(a)423 — 423 100.0 %100.0 %Q2 2019
‘A‘ali‘i(b)719 — 750 95.9 %93.7 %Q4 2021
Kō‘ula(c)549 1 565 97.3 %97.9 %Q3 2022
Under Construction
Victoria Place— 349 349 100.0 %100.0 %2024
The Park Ward Village(d)— 501 545 91.9 %92.8 %2025
Predevelopment
Ulana Ward Village(e)— 676 696 97.1 %98.7 %2025
Kalae(f)— 240 329 72.9 %74.6 %2026
(a)The retail portions of these projects are 100% leased and are finalizing the project budget. We have incurred $13.0 million of predevelopment costs of the second tower as of December 31, 2017.

`A`ali`i – In response to the strong demand for housing at lower price points in the Honolulu market, in September 2016 we announced plans to develop our next market rate tower. `A`ali`i will be a 42-story, 751-unit mixed-use condominium project located off of Queen Street next to Ae’o and the flagship Whole Foods Market, which is currently under construction. The project will consist of studio, one and two-bedroom residences and will include 150 workforce units under the HCDA’s Reserved Housing Program. The units will range from approximately 300 square feet to 900 square feet. Additionally, there will be up to 15,000 square feet of new street level retail and one acre of indoor and outdoor amenities for residents. The market rate units began pre-sales during the fourth quarter of 2017. We anticipate launching sales of the workforce units later in 2018. We are targeting to start construction during 2018. We continue to finalize the development budget and seek financing for this project. As of December 31, 2017, we have incurred $10.7 million of costs.

Other Development Projects

Century Plaza

In December 2017, we sold Century Plaza, approximately 59 acres in Birmingham, Alabama, for net cash proceeds of $3.0 million, resulting in a pre-tax loss of $1.4 million and an income tax loss of $14.8 million.

Circle T Ranch and Power Center

We are a 50% partner in two joint ventures with Hillwood Development Company, Ltd, a local Texas developer. The ventures are known as Westlake Retail Associates, Ltd and 170 Retail Associates, and we have collectively referred to them as Circle T Ranch and Power Center. On June 1, 2016, the Westlake Retail Associates venture closed on a 72-acre land sale with an affiliate of Charles Schwab Corporation, and because of the land sale, the year ended December 31, 2016 reflects the recognition of $10.5 million in Equity in earnings from Real Estate and Other Affiliates.

Kendall Town Center

In December 2017, we sold Kendall Town Center, approximately 70 acres in Kendall, Florida, for net sales proceeds of $40.5 million, resulting in a pre-tax gain of $20.2 million and an income tax loss of $32.6 million.

80 South Street Assemblage

In March 2016, we sold the 80 South Street Assemblage for net cash proceeds of $378.3 million, resulting in a pre-tax gain of $140.5 million. The 80 South Street Assemblage was a 42,694 square foot lot with 817,784 square feet of available development rights.

The Elk Grove Collection

In January 2017, we closed on a land sale of approximately 36 acres of our 100-acre property, The Elk Grove Collection, for gross sales proceeds of $36.0 million, resulting in a pre-tax gain of $32.2 million and an income tax loss of $41.8 million. We plan to develop the remaining 64 acres. Commencement of construction is dependent on meeting financing and internal pre-leasing requirements for the project.

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Table of Contents

Projects Under Construction

The following table summarizes our projects under construction, and related debt, for Operating Assets and Strategic Developments as of December 31, 2017. Projects that are substantially complete and which have been placed into service are included in the following table if the project had more than $1 million of estimated costs remaining to be incurred. Typically, these amounts represent budgeted tenant allowances necessary to bring the asset to stabilized occupancy. Projects that are substantially complete and therefore have been placed in service.

(b)The retail portion of this project has been placed in service and is 88% leased.
(c)The retail portion of this project has been placed in the Operating Assets segment may still require some capital for remaining tenant build-out.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($ in thousands)

    

Total Estimated Costs (a)

    

Costs Paid Through December 31, 2017 (b)

    

Estimated Remaining to be Spent

    

Remaining Buyer Deposits/Holdback to be Drawn

    



Debt to be Drawn (c)

    

Costs Remaining to be Paid, Net of Debt and Buyer Deposits/Holdbacks to be Drawn (c)

 

Estimated
Completion
Date

Operating Assets

 

 

(A)

 

 

(B)

 

 

(A) - (B) = (C)

 

 

(D)

 

 

(E)

 

 

(C) - (D) - (E) = (F)

 

 

 

Columbia

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One Merriweather

 

$

78,187

 

$

67,984

 

$

10,203

 

$

 -

 

$

7,597

 

$

2,606

(d) (e)

 

Complete

Two Merriweather

 

 

40,941

 

��

26,985

 

 

13,956

 

 

 -

 

 

13,727

 

 

229

(d) (e)

 

Complete

The Woodlands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1725-35 Hughes Landing Boulevard

 

 

218,367

 

 

189,736

 

 

28,631

 

 

 -

 

 

25,583

 

 

3,048

(d) (e)

 

Complete

Three Hughes Landing

 

 

90,162

 

 

67,055

 

 

23,107

 

 

 -

 

 

20,397

 

 

2,710

(d) (e)

 

Complete

HHC 2978 Self-Storage

 

 

8,476

 

 

7,754

 

 

722

 

 

 -

 

 

734

 

 

(12)

(f) (e)

 

Complete

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lakeland Village Center at Bridgeland

 

 

16,274

 

 

13,658

 

 

2,616

 

 

 -

 

 

2,530

 

 

86

(d) (e)

 

Complete

Kewalo Basin Harbor

 

 

22,718

 

 

5,807

 

 

16,911

 

 

 -

 

 

11,562

 

 

5,349

(g)

 

2019

Total Operating Assets

 

 

475,125

 

 

378,979

 

 

96,146

 

 

 -

 

 

82,130

 

 

14,016

 

 

 

Strategic Developments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Woodlands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Creekside Park Apartments

 

 

42,111

 

 

14,527

 

 

27,584

 

 

 -

 

 

30,000

 

 

(2,416)

(f) (h)

 

Q3 2018

100 Fellowship Drive

 

 

63,278

 

 

12,965

 

 

50,313

 

 

 -

 

 

51,425

 

 

(1,112)

(f) (i)

 

2019

Lake Woodlands Crossing Retail

 

 

15,381

 

 

551

 

 

14,830

 

 

 -

 

 

 -

 

 

14,830

(g)

 

Q4 2018

Seaport District

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Seaport District NYC - Pier 17 and Historic Area / Uplands

 

 

622,883

 

 

434,475

 

 

188,408

 

 

 -

 

 

 -

 

 

188,408

(g) (j)

 

Q4 2018

Seaport District NYC - Tin Building

 

 

161,812

 

 

12,590

 

 

149,222

 

 

 -

 

 

 -

 

 

149,222

(j)

 

Q1 2020

Summerlin

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aristocrat

 

 

46,661

 

 

6,691

 

 

39,970

 

 

 -

 

 

31,118

 

 

8,852

(g)

 

Q2 2018

Two Summerlin

 

 

49,538

 

 

8,368

 

 

41,170

 

 

 -

 

 

33,432

 

 

7,738

(g)

 

Q3 2018

Ward Village

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ae`o

 

 

428,508

 

 

222,292

 

 

206,216

 

 

1,254

 

 

177,449

 

 

27,513

(d)

 

Q1 2019

Anaha

 

 

401,314

 

 

371,695

 

 

29,619

 

 

 -

 

 

 -

 

 

29,619

(g) (k)

 

Opened

Ke Kilohana

 

 

218,898

 

 

64,900

 

 

153,998

 

 

225

 

 

141,386

 

 

12,387

(d)

 

2019

Waiea

 

 

424,604

 

 

391,637

 

 

32,967

 

 

 

 

 

 -

 

 

32,967

(g) (k)

 

Opened

Total Strategic Developments

 

 

2,474,988

 

 

1,540,691

 

 

934,297

 

 

1,479

 

 

464,810

 

 

468,008

 

 

 

Combined Total at December 31, 2017

 

$

2,950,113

 

$

1,919,670

 

$

1,030,443

 

$

1,479

 

$

546,940

 

$

482,024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lake Woodlands Crossing estimated financing

 

 

(15,523)

 

 

 

 

 

 

 

 

 

Estimated costs to be funded net of financing, assuming closing on estimated financing

 

$

466,501

 

 

 

service and is 29% leased.
(d)There will be approximately 26,800 square feet of retail space as part of this project.
(e)There will be approximately 32,100 square feet of retail space as part of this project.
(f)There will be approximately 2,000 square feet of retail space as part of this project.


HHC 2022 FORM 10-K | 55

(a)

Total Estimated Costs represent all costs

MANAGEMENT’S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Table of Contents
Index to be incurred on the project which include construction costs, demolition costs, marketing costs, capitalized leasing, payroll or project development fees, deferred financing costs and advances for certain accrued costs from lenders and excludes land costs and capitalized corporate interest allocated to the project. Waiea, Anaha, Ae`o, Ke Kilohana, One Merriweather and Two Merriweather exclude Master Plan infrastructure and amenity costs at Ward Village and the Merriweather District.

Financial Statements

(b)

Costs included in (a) above which have been paid through December 31, 2017.

Corporate Income, Expenses and Other Items

(c)

With respect to our condominium projects, remaining debt to be drawn is reduced by deposits utilized for construction.

(d)

These positive balances represent cash drawn in advance of costs paid.

(e)

Final completion is pending lease-up and tenant build-out.

(f)

Negative balances represent cash to be received in excess of Estimated Remaining to be Spent. These items are primarily related to December 2017 costs that were paid by us but not yet reimbursed by the lender. We expect to receive funds from our lenders for these costs in the future.

(g)

These positive balances represent cash equity to be invested.

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(h)

Creekside Apartments was approved in December 2016. We closed on the additional $30.0 million of financing through our Woodlands Credit Facility in April 2017.

(i)

In the fourth quarter of 2016, 100 Fellowship was approved to begin construction. We closed on a $51.4 million construction loan in May 2017.

(j)

Seaport District NYC - Pier 17 and Historic Area / Uplands Total Estimated Costs and Costs Paid Through December 31, 2017 include costs required for the Pier 17 and Historical Area/Uplands and are gross of insurance proceeds received to date. We are currently seeking financing for this project.

(k)

The Waiea and Anaha facility was repaid on October 27, 2017 in conjunction with the closing of a substantial number of Anaha and Waiea units. Approximately 96.5% of the units in these towers were sold and closed by December 31, 2017.

Corporate and other items

The following table contains certain corporate relatedcorporate-related and other items not related to segment activities and that are not otherwise included within the segment analyses. Variances related to income and expenses included in NOI or EBT are explained within the previous segment discussions. Significant variances for consolidated items not included in NOI or EBT are described below.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

2017-2016

 

2016-2015

(In thousands)

 

2017

  

2016

  

2015

 

Change

 

Change

General and administrative

 

$

89,882

 

$

86,588

 

$

81,345

 

$

3,294

 

$

5,243

Corporate interest expense, net

 

 

48,700

 

 

52,460

 

 

52,995

 

 

(3,760)

 

 

(535)

Loss on redemption of senior notes due 2021

 

 

46,410

 

 

 —

 

 

 —

 

 

46,410

 

 

 —

Warrant liability loss (gain)

 

 

43,443

 

 

24,410

 

 

(58,320)

 

 

19,033

 

 

82,730

(Gain) on acquisition of joint venture partner's interest

 

 

(23,332)

 

 

(27,088)

 

 

 —

 

 

3,756

 

 

(27,088)

(Gain) loss on disposal of operating assets

 

 

(3,868)

 

 

1,117

 

 

(29,073)

 

 

(4,985)

 

 

30,190

Corporate other (income), net

 

 

45

 

 

(6,241)

 

 

(1,409)

 

 

6,286

 

 

(4,832)

Corporate gains on sales of properties

 

 

(125)

 

 

 —

 

 

 —

 

 

(125)

 

 

 —

Equity in earnings in Real Estate and Other Affiliates

 

 

453

 

 

 —

 

 

 —

 

 

453

 

 

 —

Corporate depreciation and amortization

 

 

8,298

 

 

6,496

 

 

6,042

 

 

1,802

 

 

454

Total Corporate and other items

 

$

209,906

 

$

137,742

 

$

51,580

 

$

72,164

 

$

86,162

General and administrative expenses increasedbelow for the years ended December 31, 201731:


2022-2021
thousands20222021$ Change
Corporate income$58 $340 $(282)
General and administrative(81,772)(81,990)218 
Corporate interest expense, net(88,394)(101,279)12,885 
Gain (loss) on extinguishment of debt(147)(35,084)34,937 
Corporate other income (loss), net982 425 557 
Corporate depreciation and amortization(3,684)(4,324)640 
Other(11,977)(10,668)(1,309)
Income tax (expense) benefit(60,500)(15,153)(45,347)
Total Corporate income, expenses and other items$(245,434)$(247,733)$2,299 

Corporate income, expenses and 2016other items was favorably impacted compared to the same periods in 2016 and 2015, respectively,prior-year period by the following:
–Loss on extinguishment of debt decreased $34.9 million due to higher labor costs relating generally to increasesthe repurchase of the Company’s $1.0 billion 5.375% Senior Notes due 2025 that occurred in salaries.

the first quarter of 2021.

–Corporate interest expense net decreased $12.9 million primarily due to the change in value of derivative instruments and the repurchase of the $1.0 billion 5.375% Senior Notes in the first quarter of 2021, partially offset by the issuance of $650 million 4.125% Senior Notes and $650 million 4.375% Senior Notes in the first quarter of 2021. Refer to Note 9 - Derivative Instruments and Hedging Activities for additional information on derivative instruments.

Corporate income, expenses and other items was unfavorably impacted compared to the prior-year period by the following:
–Income tax expense increased $45.3 million primarily due to an increase in income before income taxes. Refer to Note 12 - Income Taxes for additional information.

Income Taxes
thousands except percentages20222021
Income tax expense (benefit)$60,500 $15,153 
Income (loss) before income taxes$245,136 $64,077 
Effective tax rate24.7 %23.6 %

The Company’s effective tax rate is typically impacted by non-deductible executive compensation and other permanent differences as well as state income taxes, which cause the Company’s effective tax rate to deviate from the federal statutory rate.

The Company’s effective tax rate for the year ended December 31, 2017 as2022, was 24.7% compared to the same period in 2016 primarily due to increased interest income due to increases in market interest rates and investing excess cash on hand in competitive investments yielding higher interest rates. See further discussion in Note 8 – Mortgages, Notes and Loans Payablein our Consolidated Financial Statements.

Loss on redemption of senior notes due in 202123.6% for the year ended December 31, 2017 is2021. The increase was primarily due to the redemptionfollowing:

–a release of a valuation allowance of $4.7 million on the Company’s capital loss carryover in 2021 related to a capital loss generated by the sale of the Company’s 50% equity method investment in Circle T Ranch and Power Center in 2020 (refer to Note 3 - Acquisitions and Dispositions in the Notes to Consolidated Financial Statements under Item 8 of this Form 10-K for additional details), partially offset by a decrease related to the tax impact of noncontrolling interests

For additional information on income taxes, see Note 12 - Income Taxes in the Notes to Consolidated Financial Statements under Item 8 of this Form 10-K.

HHC 2022 FORM 10-K | 56
MANAGEMENT’S DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
Table of Contents
Index to Financial Statements
LIQUIDITY AND CAPITAL RESOURCES

We continue to maintain a strong balance sheet and ensure we maintain the financial flexibility and liquidity necessary to fund future growth. In 2022, to enhance our liquidity profile and extend the terms of our maturities, we entered into new borrowings of $899.2 million (excluding undrawn amounts on new construction loans), drew on existing mortgages of $336.7 million, and made repayments on mortgages and credit facility of $1.1 billion. As of December 31, 2022, we have $934.1 million of undrawn lender commitment available to be drawn for property development, subject to certain restrictions, and $200.0 million of available capacity on the Secured Bridgeland Notes.

In 2022, the Company sold its ownership interest in 110 North Wacker for net proceeds to the Company of $168.9 million and sold the Outlet Collection at Riverwalk for net proceeds of $8.2 million. These sales completed our planned non-core assets sales, with 15 non-core assets sold since the fourth quarter of 2019, generating approximately $578.1 million of net proceeds after debt repayment. Additionally, during the fourth quarter of 2022, the Company completed the sale of two retail properties in The Woodlands, Lake Woodlands Crossing and Creekside Village Green, for combined net proceeds after debt repayment of $38.8 million.

In October 2021, the board of directors (Board) of The Howard Hughes Corporation, authorized a share repurchase program, pursuant to which the Company was authorized to purchase up to $250.0 million of its common stock through open-market transactions. The Company has completed all share repurchases under this plan, with $96.6 million repurchased in the fourth quarter of 2021 and $153.4 million repurchased in the first quarter of 20172022. In March 2022, the Board authorized an additional $250.0 million of our $750.0share repurchases. Under this program, the Company has repurchased approximately $235.0 million 6.875% senior notes due in 2021. See further discussion in Note 8 – Mortgages, Notes and Loans Payablein our Consolidated Financial Statements.

Warrant liability loss increased for the year endedas of December 31, 2017, as compared to the same period in 2016 as all warrants which qualified for liability accounting treatment and2022. All purchases were marked-to-market periodically have now been exercised and settled. See further discussion in Note 3 – Warrants in our Consolidated Financial Statements. Warrant liability loss increased $82.7 million for the year ended December 31, 2016 compared to the same period in 2015 due to fluctuations in our stock price.

We realized a gain of $17.8 million for the year ended December 31, 2017 related to the acquisition of our joint venture partner’s interest in Constellation. In accordance with ASC 805, we remeasured to fair value our equity interest held in the joint venture as of the December 28, 2017 acquisition date. We realized a gain of $27.1 million for the year ended December 31, 2016 related to the acquisition of our joint venture partner’s interest in Millennium Six Pines Apartments. In accordance with ASC 805, we remeasured to fair value our equity interest held in the joint venture as of the July 20, 2016 acquisition date.

We realized a gain on disposal of operating assets related to the sale of Cottonwood Square in 2017. We realized a gain of $29.1 million in the year ended December 31, 2015 relating to the September 2015 sale of The Club at Carlton Woods for net cash proceeds of $25.1 million and purchaser’s assumption of net liabilities of $4.0 million.

The Corporate other income, net for the year ended December 31, 2017 decreased as compared to the same period in 2016 due to Seaport District NYC insurance proceeds received in the year ended December 31, 2016 which did not recur in 2017.

The following table represents our capitalized internal costs by segment for the years ended December 31, 2017, 2016 and 2015:

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Capitalized Internal Costs

 

Capitalized Internal Costs Related to
Compensation Costs

 

 

Year Ended December 31, 

 

Year Ended December 31, 

(In millions)

    

2017

    

2016

    

2015

    

2017

    

2016

    

2015

MPC segment

 

$

9.6

 

$

9.7

 

$

9.5

 

$

7.7

 

$

7.6

 

$

7.3

Operating Assets segment

 

 

2.5

 

 

5.3

 

 

4.0

 

 

2.1

 

 

4.0

 

 

2.9

Strategic Developments segment

 

 

24.9

 

 

24.2

 

 

25.9

 

 

21.1

 

 

18.5

 

 

19.7

Total

 

$

37.0

 

$

39.2

 

$

39.4

 

$

30.9

 

$

30.1

 

$

29.9

Capitalized internal costs (which include compensation costs) for the year ended December 31, 2017 decreased as compared to 2016 primarily due to fewer projects under development in the current year for the Operating Assets segment. The capitalized internal costs slightly increased for the Strategic Developments segment due to the increases in projects at several locations. At the MPC segment, capitalized internal costs slightly decreased for the year ended December 31, 2017 due to fluctuations in the level of development activity at our newer MPCs. As projects continue to begin construction, internal costs will continue to be capitalized within these segments.

Capitalized internal costs (which include compensation costs) for the year ended December 31, 2016 decreased at our Strategic Developments and increased at our MPC segments compared to 2015, primarily due to higher staff allocations as a result of more development activity within the segments. As projects continue to begin construction, internal costs will continue to be capitalized within these segments. Capitalized internal costs increased for the year ended December 31, 2016 in our Operating Assets segment compared to 2015, primarily due to higher staff allocations with respect to our properties undergoing redevelopment.

Liquidity and Capital Resources

Our primary sources of cash include cash flow from land sales in our MPC segment, cash generated from our operating assets and sales of properties, condominium closings, deposits from condominium sales (which are restricted to funding construction of the related developments), first mortgage financings secured by our assets and the corporate bond markets. Additionally, strategic sales of certain assets may provide additional cash proceeds to our operating or investing activities. Our primary uses of cash include working capital, overhead, debt service, property improvements, acquisitions and development costs. We believe that our sources of cash, including existing cash on hand, will provide sufficient liquidity to meet our existing non-discretionary obligations and anticipated ordinary course operating expenses for at least the next twelve months. The development and redevelopment opportunities in our Operating Assets and Strategic Developments segments are capital intensive and will require significant additional funding. Any additional funding would be raised with a mix of construction, bridge and long-term financings, by entering into joint venture arrangements and the sale of non-core assets at the appropriate time. We cannot provide assurance that financing arrangements for our properties, particularly those in our Strategic Developments segment, will be on favorable terms or occur at all, which could have a negative impact on our liquidity and capital resources. In addition, we typically must provide completion guarantees to lenders in connection with their providing financing for our projects. We have also provided a completion guarantee to the City of New York for the Seaport District NYC - Pier 17 project.  

On February 23, 2018, we repurchased 475,920 shares of our common stock, par value $0.01 per share, in a private transaction with an unaffiliated entity at a purchase price of $120.33 per share, or approximately $57,267,453 in the aggregate. The repurchase transaction was consummated on February 21, 2018, and was funded with cash on hand.

Total outstanding debt was $2.9 billion as of December 31, 2017. Please refer to Note 8 – Mortgages, Notes and Loans Payable in our Consolidated Financial Statements for a table showing our debt maturity dates. Certain mortgages may require paydowns in order to exercise contractual extension terms. Our proportionate share of the debt of our Real Estate Affiliates, which is non-recourse to us, totaled $85.0 million as of December 31, 2017.

The following table summarizes our net debt on a segment basis as of December 31, 2017. Net debt is defined as mortgages, notes and loans payable, including our ownership share of debt of our Real Estate and Other Affiliates, reduced by liquidity sources to satisfy such obligations such as our ownership share of cash and cash equivalents and SID and MUD receivables. Although net debt is not a recognized GAAP financial measure, it is readily computable from existing GAAP information and we believe, as with our other non-GAAP measures, that such information is useful


Cash Flows

 Year Ended December 31,
thousands20222021
Cash provided by (used in) operating activities$325,254 $(283,958)
Cash provided by (used in) investing activities(220,695)101,458 
Cash provided by (used in) financing activities(222,259)156,140 

Operating Activities Each segment’s relative contribution to our investors and other users of our

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Table of Contents

financial statements. However, it should not be used as an alternative to our consolidated debt calculated in accordance with GAAP.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)
Segment Basis (a)

    

Master
Planned
Communities

 

Operating
Assets

 

Strategic
Developments

 

Segment
Totals

    

Non-
Segment
Amounts

    

Total
December 31, 2017

Mortgages, notes and loans payable

 

$

239,764

 

 

$

1,625,494

(c)

 

$

82,530

(d)

 

$

1,947,788

 

$

995,140

 

$

2,942,928

Less: cash and cash equivalents

 

 

(104,256)

(b)

 

 

(71,520)

(e)

 

 

(44,202)

(f)

 

 

(219,978)

 

 

(674,701)

 

 

(894,679)

Special Improvement District receivables

 

 

(26,430)

 

 

 

 —

 

 

 

 —

 

 

 

(26,430)

 

 

 —

 

 

(26,430)

Municipal Utility District receivables

 

 

(184,811)

 

 

 

 —

 

 

 

 —

 

 

 

(184,811)

 

 

 —

 

 

(184,811)

Net Debt

 

$

(75,733)

 

 

$

1,553,974

 

 

$

38,328

 

 

$

1,516,569

 

$

320,439

 

$

1,837,008

(a)

Please refer to Note 17 –Segments in our Consolidated Financial Statements.

(b)

Includes MPC cash and cash equivalents, including $30.8 million of cash related to The Summit joint venture.

(c)

Includes our $36.1 million proportionate share of debt of our Real Estate and Other Affiliates in Operating Assets segment (Woodlands Sarofim #1 and The Metropolitan Downtown Columbia).

(d)

Includes our $48.9million share of debt of our Real Estate and Other Affiliates in Strategic Developments segment (33 Peck Slip and m.flats/TEN.M).

(e)

Includes our $0.4 million share of cash and cash equivalents of our Real Estate and Other Affiliates in Operating Assets segment (Woodlands Sarofim #1, The Metropolitan Downtown Columbia and Stewart Title of Montgomery County, TX).

(f)

Includes our $2.5 million share of cash and cash equivalents of our Real Estate and Other Affiliates in Strategic Developments segment (KR Holdings, LLC, HHMK Development, LLC, Circle T Ranch and Power Center, 33 Peck Slip and m.flats/TEN.M).

Cash Flows

Operating Activities

The cash flows and earnings generated from each business segment’soperating activities will likely vary significantly from year to year given the changing nature of our development focus. Other than our condominium properties, most of the properties and projects in our Strategic Developments segment do not generate revenues and the cash flows and earnings may vary. Condominium deposits received from contracted units offset by other various cash uses related to condominium development and sales activities are a substantial portion of our operating activities in 2017.2022. Operating cash continued to be utilized in 20172022 to fund ongoing development expenditures in our Strategic Developments, Seaport and MPC segments, consistent with prior years.


The cash flows and earnings from the MPC business may fluctuate more than from our operating assets because the MPC business generates revenues from land sales rather than recurring contractual revenues from operating leases. MPC land sales are a substantial portion of our cash flows from operating activities and are partially offset by development costs associated with the land sales business and acquisitions of land that is intended to ultimately be developed and sold.


Net cash provided by operating activities was $319.0increased $609.2 million for the year ended December 31, 2017in 2022, compared to net2021, primarily due to $574.3 million of MPC land acquisition costs in 2021 related to Teravalis and Floreo, compared to no MPC land acquisition costs in 2022. Additionally, cash provided by operating activities of $58.9included a $129.8 million for the year ended December 31, 2016.

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The $260.1 million net increase in net cash associated with our condominiums and a $70.6 million increase in MUD receivable collections. The impact of these items was partially offset by an increase of $73.9 million in cash used pertaining to master planned community development expenditures, a decrease of $34.9 million in cash provided by distributions from operating activitiesequity method investments and a decrease of $19.2 million in 2017 was primarilycash provided related to the following:

Increasesreturn of an interest rate lock deposit in operating cash flow:

the first quarter of 2021 associated with a debt instrument.

HHC 2022 FORM 10-K | 57

·

Release

MANAGEMENT’S DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
Table of condominium buyer deposits from escrow of $264.9 million;

Contents
Index to Financial Statements

·

Increase in MPC land sales of $33.3 million;

·

Increase in income tax refund net of taxes paid of $30.6 million;

·

NOI contribution of $22.0 million primarily from property openings and acquisitions in 2016;

·

Accounts payable decrease $22.0 million;

·

Bridgeland easement sales of $14.1 million;

·

Decrease in MPC operating expenses of $3.6 million;

·

Insurance reimbursement for certain legal expenses of $3.5 million;

·

Increase in interest income of $2.7 million;

·

Increase in builder price participation payments of $1.4 million;

·

Other condo rental revenue of $1.1 million;

·

Decrease in real estate taxes paid of $1.1 million;

·

Increase in land sales deposits of $0.3 million; and

·

Other insignificant net increases of $1.4 million.

Decreases in operating cash flow:

·

Increase in MPC expenditures and land acquisitions of $47.8 million;

·

Greater condominium expenditures of $22.1 million;

·

Decrease in cash dividends from Equity in Earnings from Real Estate and Other Affiliates of $22.1 million;

·

Decrease in condominium revenue of $20.7 million;

·

Leasing and sales commissions paid, primarily for 110 North Wacker, Hughes Landing office buildings and condominiums of $7.5 million;

·

Deposit for Langham Creek MUD project net of reimbursements of $5.5 million;

·

Increase in interest payments of $5.3 million due to a higher debt balance;

·

Absence in 2017 of insurance proceeds from Superstorm Sandy of $3.1 million;

·

Absence in 2017 of the ExxonMobil reimbursement of $3.0 million;

·

Absence in 2017 of cash received for our participation interests in Summerlin TPC golf courses of $2.8 million; and

·

Increase in condominium operating expenses of $2.0 million.

The $35.0 million net increase in cash from operating activities in the year ended December 31, 2016 as compared to December 31, 2015 was primarily related to the following:

Increases in operating cash flow:

·

Release of condominium buyer deposits from escrow of $171.0 million;

·

Decreased MPC expenditures and land acquisitions of $54.6 million compared to 2015;

·

Increase in cash dividends from Equity in Earnings from Real Estate and Other Affiliates of $32.6 million;

·

NOI contribution of $19.0 million primarily from property openings and acquisitions in 2015;

·

Received additional insurance proceeds from Superstorm Sandy of $3.1 million;

·

Increased MUD collections of $5.0 million; and

·

Other miscellaneous items of $1.6 million. 

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Decreases in operating cash flow:

·

Greater condominium expenditures of $139.4 million;

·

Absence in 2016 of the ExxonMobil tenant improvements of $46.4 million;

·

Absence in 2016 of notes receivable collections of $25.5 million primarily from a builder;

·

Decreased MPC Land sales of $19.9 million;

·

Increase in income taxes paid of $7.9 million;

·

Increase in interest payments of $7.3 million due to a higher debt balance; and

·

Lower builder price participation revenues of $5.5 million.

Investing Activities

Net cash used in investing activities was $322.7increased $322.2 million $38.6in 2022, compared to 2021, primarily due to a $240.7 million and $575.6decrease in proceeds from sales of properties, a $78.4 million for the years ended December 31, 2017, 2016 and 2015, respectively. Cashincrease in cash used for property developmentsdevelopment and redevelopment expenditures and operating property improvements, was $390.4a $99.2 million $436.8 million,increase in cash used for investments in real estate and $602.4 million for the years ended December 31, 2017, 2016 and 2015, respectively. The decreased development expenditures in 2017 compared to 2016 relateother affiliates, primarily to lower development spending as comparedattributable to the prior year on constructionCompany’s investment in Jean-Georges Restaurants. Proceeds from sales of One Merriweather, HHC 242 Self-Storage, HHC 2978 Self-Storage, Waieaproperties in 2022 related to Creekside Village Green, Lake Woodlands Crossing and others. The development expenditures werethe Outlet Collection at Riverwalk and proceeds from the sale of properties in 2021 related to the Company’s hospitality properties, Monarch City and Century Park. This increase in net cash used was partially offset by less cash provideda $115.6 million increase in distributions from proceeds from disposition of assets for the year ended December 31, 2017. For the year ended December 31, 2016, net proceeds from disposition of assets totaled $378.3 million andunconsolidated ventures. The distributions received in 2022 primarily related to the sale of the 80 South Street Assemblage.

The decreased development expendituresCompany’s ownership interest in 2016 compared to 2015 relate primarily to lower development spending as110 North Wacker, compared to the prior year on constructiondistributions received in 2021 related to the return of Downtown Summerlin, One Lakes Edge, Three Hughes Landing, 1725-35 Hughes Landing Boulevard, The Westinthe Company’s initial capital contribution at The Woodlands, Embassy Suites at Hughes Landingthe Summit.


Financing Activities Net cash used in financing activities increased $378.4 million in 2022, compared to 2021, primarily due to a $322.7 million increase in cash used for repurchases of common shares in 2022, and others. The development expenditures were offset bya $112.0 million net decrease in cash provided by investing activitiesproceeds from debt financing activity, net of principal payments primarily due to significant debt financing activity in 2021.

Short- and Long-Term Liquidity

Short-Term LiquidityIn the next twelve months, we expect our primary sources of cash to include cash flow from MPC land sales, cash generated from our operating assets, first mortgage financings secured by our assets and deposits from condominium sales (which are restricted to funding construction of the related developments). We expect our primary uses of cash to include condominium pre-development and development costs, debt principal payments and debt service costs, MPC land development costs and other strategic developments costs. We believe that our sources of cash, including existing cash on hand, will provide sufficient liquidity to meet our existing obligations and anticipated ordinary course operating expenses for at least the next 12 months.

Long-Term LiquidityThe development and redevelopment opportunities in Strategic Developments, Seaport and Operating Assets are capital intensive and will require significant additional funding, if and when pursued. Any additional funding beyond those sources listed above would be raised with a mix of construction, bridge and long-term financings, by entering into joint venture arrangements, as well as future equity raises.

We cannot provide assurance that financing arrangements for our properties will be on favorable terms or occur at all, which could have a negative impact on our liquidity and capital resources. In addition, we typically must provide completion guarantees to lenders in connection with their financing for our projects. We also provided completion guarantees to the City of New York for the year ended December 31, 2016 relating to the saleredevelopment of the 80 South Street Assemblage, which generated net proceeds of $378.3 million.

Financing Activities

Net cash provided by financing activities was $199.2 millionTin Building, as well as the Hawai‘i Community Development Authority for reserve condominium units at Ward Village. The Company received the year ended December 31, 2017. The net proceeds from new loan borrowings and refinancing activities slightly exceeded principal payments on our debt and were used to partially fund development activity at our condominium and other development projects. In 2017, including $1.0 billion in cash receivednecessary approvals from the issuanceNew York City Economic Development Corporation to relinquish the Tin Building guarantee in early 2023.


Summary of the Senior Notes, cash provided by financing activities included loan proceeds of $501.0 million from new borrowings or refinancings of existingRemaining Development CostsThe following table summarizes remaining development costs related to projects under construction and related debt primarily relating to Constellation, Anaha, Ae`o, Three Hughes Landing, One Merriweather and The Woodlands. Additionally in 2017, we received $52.0 million in cash from the purchases of warrants by our CEO and President, offset by the $40.0 million premium paid to redeem our 6.875% Senior Notes due 2021.

Net cash provided by financing activities was $199.9 million for the year ended December 31, 2016. The net proceeds from new loan borrowings and refinancing activities were slightly offset by scheduled amortization payments on our debt and were used to partially fund development activity at our condominium and other development projects. In 2016, cash provided by financing activities included loan proceeds of $535.5 million from new borrowings or refinancings of existing debt primarily relating to Millennium Six Pines, Anaha, Waiea, Hughes Landing Retail, One Merriweather and Bridgeland MPC.

In 2015, cash provided by financing activities included loan proceeds of $583.8 million from new borrowings or refinancings of existing debt relating to Bridgeland and The Woodlands MPCs, The Woodlands Resort & Conference Center, Two Hughes Landing, 10-60 Columbia Corporate Center, 1725-1735 Hughes Landing Boulevard, Embassy Suites at Hughes Landing, The Westin at The Woodlands, Hughes Landing Retail, One Lakes Edge and 3831 Technology Forest. Additionally, we issued $54.0 million in SID bonds to benefit our Summerlin MPC, of which $39.2 million was held in escrowOperating Assets, Seaport and Strategic Developments segments as of December 31, 2015.

Principal payments on mortgages, notes2022. Total cost remaining to be paid net of debt and loans payable were $1.4 billion inclusivebuyer deposits consists of $750$139.8 million usedrelated to repaysubstantially completed projects, $50.7 million related to projects with estimated completion dates within the 6.875% senior notes, $333.3next 12 months and $75.3 million related to projects with estimated completion dates in 2024 and $103.82025.


Projects that are substantially complete and have been placed into service in the Operating Assets or Seaport segments and completed condominium projects in the Strategic Developments segment are included in the following table if the project has more than $1.0 million for the years endedof estimated costs remaining to be incurred. As of December 31, 2017, 20162022, $49.9 million primarily relates to warranty repairs at Waiea in Ward Village. However, we anticipate recovering a substantial amount of these costs in the future, which is not reflected in the table below. The remaining cost related to substantially completed projects primarily represent costs associated with the completion of common areas at our completed condominium towers and 2015, respectively.

budgeted tenant allowances necessary to bring our completed operating assets to stabilized occupancy.


62

HHC 2022 FORM 10-K | 58

MANAGEMENT’S DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
Table of Contents
Index to Financial Statements

TableWe expect to be able to meet our cash funding requirements with a combination of Contents

existing and anticipated construction loans, condominium buyer deposits, free cash flow from our Operating Assets and MPC segments, net proceeds from condominium sales and our existing cash balances.


thousands Estimated Remaining to be Spent Remaining Buyer Deposits/Holdback to be Drawn Debt to be Drawn (a) Costs Remaining to be Paid, Net of Debt
and Buyer Deposits/Holdbacks to be Drawn (b)
Operating Assets
Columbia$60,018 $— $31,689 $28,329 
The Woodlands6,833 — 7,146 (313)
Bridgeland9,344 — 11,514 (2,170)
Summerlin36,086 — 36,935 (849)
Total Operating Assets112,281 — 87,284 24,997 
Seaport Assets
Seaport38,923 — — 38,923 
Total Seaport Assets38,923 — — 38,923 
Strategic Developments
Columbia40,239 — — 40,239 
Bridgeland74,849 — 54,065 20,784 
Summerlin78,666 — 28,001 50,665 
Ward Village (c)1,042,985 257,159 695,630 90,196 
Total Strategic Developments1,236,739 257,159 777,696 201,884 
Total$1,387,943 $257,159 $864,980 $265,804 
(a)Refer to Note 7 - Mortgages, Notes and Loans Payable, Net in the Notes to Consolidated Financial Statements under Item 8 of this Form 10-K for additional information on debt.
(b)Negative balances relate to costs paid by HHC but not yet reimbursed by lenders. We expect to receive funds from our lenders for these costs in the future.
(c)Estimated remaining to be spent includes amounts for Waiea warranty repairs. However, we anticipate recovering a substantial amount of these costs in the future, which is not reflected in this schedule.

Contractual Cash Obligations and Commitments

The following table aggregates our contractual cash obligations and commitments as of December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Less than 1 year

 

1-3 years

 

3-5 years

 

5 years and thereafter

 

Total

Mortgages, notes and loans payable (a)

 

$

78,207

 

$

902,184

 

$

535,904

 

$

1,361,494

 

$

2,877,789

Interest Payments (b)

 

 

130,849

 

 

347,517

 

 

164,699

 

 

185,105

 

 

828,170

Ground lease and other leasing commitments

 

 

8,769

 

 

16,378

 

 

15,527

 

 

314,129

 

 

354,803

Total

 

$

217,825

 

$

1,266,079

 

$

716,130

 

$

1,860,728

 

$

4,060,762

2022:

(a)

Based on final maturity, inclusive of extension options.

thousands20232024202520262027ThereafterTotal
Mortgages, notes and loans payable$166,062 $62,150 $386,314 $556,475 $298,458 $3,332,729 $4,802,188 
Interest Payments (a)261,983 242,078 221,851 194,918 155,947 389,564 1,466,341 
Ground lease commitments (b)2,791 2,847 2,905 2,965 3,026 240,574 255,108 
Total$430,836 $307,075 $611,070 $754,358 $457,431 $3,962,867 $6,523,637 

(b)

Interest is based on the borrowings that are presently outstanding and current floating interest rates.

(a)Interest is based on the borrowings that are presently outstanding and current floating interest rates.

(b)Primarily relates to a $247.4 million Seaport ground lease which has an initial expiration date of December 31, 2072, and is subject to extension options through December 31, 2120. Future cash payments are not inclusive of extension options. The remaining $7.7 million in ground lease commitments relates to Kewalo Basin Harbor.

We lease land or buildings at certain properties from third parties. Rental payments are expensed as incurred and have been, to the extent applicable, straight-lined over the term of the lease. Contractual rental expense, including participation rent, was $8.6 million, $8.4 million and $9.1$5.6 million for 2017, 2016the year ended December 31, 2022, and 2015, respectively.$7.2 million for the year ended December 31, 2021. The amortization of aboveabove- and below-market ground leases and straight-line rents included in the contractual rent amount were not significant.

Off-Balance Sheet Financing Arrangements

We do not have any material off-balance sheet financing arrangements. Although we have interests in certain property owning non-consolidated ventures which have mortgage financing, the financings are non-recourse to us and totaled $183.9 million as


DebtAs of December 31, 2017.

Seasonality

In general, business fluctuates only moderately with2022, the seasonsCompany had $4.7 billion of outstanding debt, $934.1 million of undrawn lender commitment available to be drawn for property development, subject to certain restrictions, and is relatively stable. Business at our resort property may be seasonal depending$200 million of available capacity on location.

Critical Accounting Policies

Critical accounting policies are those that are both significant to the overall presentation of our financial condition position and results of operations and require management to make difficult, complex or subjective judgments. For further discussion about the Company’s critical accounting policies, please referSecured Bridgeland Notes. Refer to Note 1 –Summary of Significant Accounting Policies in our Consolidated Financial Statements.

Recently Issued Accounting Pronouncements7 - Mortgages, Notes and Developments

Please refer to Note 1 –Summary of Significant Accounting PoliciesLoans Payable, Net in our Consolidated Financial Statements for additional detail.


HHC 2022 FORM 10-K | 59
MANAGEMENT’S DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
Table of Contents
Index to Financial Statements
Debt Compliance As of December 31, 2022, the Company was in compliance with all debt covenants with the exception of the debt service coverage ratios for three property-level debt instruments. As a result, the excess net cash flow after debt service from the underlying properties became restricted. While the restricted cash could not be used for general corporate purposes, it could be used to fund operations of the underlying assets and did not have a material impact on the Company’s liquidity or its ability to operate these assets.

Net Debt The following table summarizes our net debt on a segment basis as of December 31, 2022. Net debt is defined as Mortgages, notes and loans payable, net, including our ownership share of debt of our unconsolidated ventures, reduced by liquidity sources to satisfy such obligations such as our ownership share of Cash and cash equivalents and SID, MUD and TIF receivables. Although net debt is a non-GAAP financial measure, we believe that such information is useful to our investors and other users of our financial statements as net debt and its components are important indicators of our overall liquidity, capital structure and financial position. However, it should not be used as an alternative to our debt calculated in accordance with GAAP.

thousandsOperating
Assets		Master
Planned
Communities		SeaportStrategic
Developments		Segment
Totals		Non-
Segment
Amounts		December 31, 2022
Mortgages, notes and loans payable, net$2,213,179 $329,297 $99,762 $78,682 $2,720,920 $2,026,263 $4,747,183 
Mortgages, notes and loans payable of unconsolidated ventures90,380 34,680 107 — 125,167 — 125,167 
Less:
Cash and cash equivalents(143,197)(148,184)(11,928)(559)(303,868)(322,785)(626,653)
Cash and cash equivalents of unconsolidated ventures(2,053)(25,060)(8,860)(3,883)(39,856)— (39,856)
Special Improvement District receivables— (64,091)— — (64,091)— (64,091)
Municipal Utility District receivables, net— (473,068)— — (473,068)— (473,068)
TIF receivable— — — (1,893)(1,893)— (1,893)
Net Debt$2,158,309 $(346,426)$79,081 $72,347 $1,963,311 $1,703,478 $3,666,789 

Unconsolidated VenturesWe have interests in certain unconsolidated ventures which, as of December 31, 2022, have mortgage financing totaling $249.9 million, with our proportionate share of this debt totaling $125.2 million. All of this indebtedness is without recourse to the Company, with the exception of the collateral maintenance obligation for Floreo. See Note 10 - Commitments and Contingencies in the Notes to Consolidated Financial Statements under Item 8 of this Form 10-Kfor additional information related to the Company’s collateral maintenance obligation. The following table summarizes our share of affiliate debt and cash as of December 31, 2022:
thousandsCompany’s Share of Unconsolidated Ventures’ DebtCompany’s Share of Unconsolidated Ventures’ Cash
Operating Assets
The Metropolitan Downtown Columbia$40,200 $499 
Stewart Title of Montgomery County, TX— 881 
Woodlands Sarofim #1975 150 
m.flats/TEN.M49,205 523 
Master Planned Communities
The Summit9,281 13,523 
Floreo25,399 11,537 
Seaport
The Lawn Club— 1,843 
Tin Building by Jean-Georges— 1,492 
Jean-George Restaurants107 5,314 
Ssäm Bar (formerly Bar Wayō)— 211 
Strategic Developments
HHMK Development— 10 
KR Holdings— 485 
West End Alexandria— 3,388 
Total$125,167 $39,856 

HHC 2022 FORM 10-K | 60
MANAGEMENT’S DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
Table of Contents
Index to Financial Statements
CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in accordance with GAAP requires management to make informed judgments, assumptions and estimates that affect the reported amounts of assets, liabilities, revenues, and expenses. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Changes in facts and circumstances or additional information may result in revised estimates, and actual results may differ from these estimates.

We believe that of our significant accounting policies, which are described in Note 1 - Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements under Item 8 of this Form 10-K, the accounting policies below involve a greater degree of judgment and complexity. Accordingly, we believe these are the most critical to understand and evaluate fully our financial condition and results of operations.

Impairments

Methodology We review our long-lived assets for potential impairment indicators whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Although the carrying amount may exceed the estimated fair value of certain properties, a real estate asset is only considered to be impaired when its carrying amount is not expected to be recovered through estimated future undiscounted cash flows. To the extent an impairment provision is necessary, the excess of the carrying amount of the asset over its estimated fair value is expensed to operations and the carrying amount of the asset is reduced. The adjusted carrying amount, which represents the new cost basis of the asset, is depreciated over the remaining useful life of the asset or, for MPCs, is expensed as a cost of sales when land is sold.

Judgments and uncertainties An impairment loss is recognized if the carrying amount of an asset is not recoverable and exceeds its fair value. The cash flow estimates used both for determining recoverability and estimating fair value are inherently judgmental and reflect current and projected trends in rental, occupancy, pricing, development costs, sales pace and capitalization rates, selling costs, and estimated holding periods for the applicable assets. As such, the evaluation of anticipated cash flows is highly subjective and is based in part on assumptions that could differ materially from actual results in future periods. Unfavorable changes in any of the primary assumptions could result in a reduction of anticipated future cash flows and could indicate property impairment. Uncertainties related to the primary assumptions could affect the timing of an impairment. While we believe our assumptions are reasonable, changes in these assumptions may have a material impact on our financial results.

Master Planned Communities Cost of Sales

Methodology When residential or commercial land is sold, the cost of sales includes actual costs incurred and estimates of future development costs benefiting the property sold. When land is sold, costs are allocated to each sold superpad or lot based upon the relative sales value. For purposes of allocating development costs, estimates of future revenues and development costs are re-evaluated throughout the year, with adjustments being allocated prospectively to the remaining parcels available for sale. For certain parcels of land, including acquired parcels that the Company does not intend to develop or for which development was complete at the date of acquisition, the specific identification method is used to determine the cost of sales.

Judgments and uncertainties MPC cost of sales estimates are highly judgmental as they are sensitive to cost escalation, sales price escalation and pace of absorption, which are subject to judgment and affected by expectations about future market or economic conditions. Changes in the assumptions used to estimate future development costs could result in a significant impact on the amounts recorded as cost of sales.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS AND DEVELOPMENTS

Please refer to Note 1 - Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements under Item 8 of this Form 10-K for additional information about new accounting pronouncements.

Inflation

Revenue from our Operating Assets segment may be impacted by inflation. In addition, materials


HHC 2022 FORM 10-K | 61
MARKET RISK
QUANTITATIVE AND QUALITATIVE DISCLOSURES
Table of Contents
Index to Financial Statements
Item 7A. Quantitative and labor costs relating to our development activities may significantly increase in an inflationary environment. Finally, inflation poses a risk to us due to the possibility of future increases in interest rates in the context of loan refinancings.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 

Qualitative Disclosures about Market Risk


We are subject to interest rate risk with respect to our variable ratevariable-rate financings in thatas increases in interest rates will increasewould cause our payments under these variable rates.such financings to increase. With respect to fixed-rate financings, increases in interest rates could make it more difficult to refinance such debt when it becomes due. We manage a portion of our variable interest rate exposure by using interest rate swaps and caps. As of December 31, 2017, of our $1.4 billion of variable rate debt outstanding, $428.3 million has been swapped to a fixed-rate. We also have interest rate cap contracts for our $230.0 million Ae`o facility and our $180.0 million Master Credit Facility for The Woodlands, $150.0 million of which is currently outstanding, to mitigate our exposure to rising interest rates. Of the remaining $562 million, $176.9 million has been placed into service over the last year, and as the properties are placed ininto service and become stabilized, we typically refinance the variable ratevariable-rate debt with long-term fixed-rate debt.

63


TableThe Company uses derivative instruments to manage its interest rate risk, primarily through the use of Contents

Asinterest rate swaps and interest rate caps. The Company had $1.2 billion of variable-rate debt outstanding at December 31, 2022, of which $871.0 million was swapped to a fixed rate through the use of interest rate swaps and $320.6 million had interest rate cap contracts in place. Additionally, the interest rate caps are on construction loans and mortgages with undrawn loan commitment of $384.1 million as of December 31, 2017, annual2022, which will be covered by the interest costs would increase approximately $9.2 millionrate cap contracts upon drawing. Refer to Note 9 - Derivative Instruments and Hedging Activities in the Notes to Consolidated Financial Statements under Item 8 of this Form 10-K for every 1.00% increaseadditional detail.


As the Company has interest rate swaps and interest rate caps in place, the exposure to increases in floating interest rates.rates is immaterial as of December 31, 2022. However, an interest rate swap with a notional amount of $615.0 million and interest rate caps with notional amounts totaling $368.2 million will expire in the third quarter of 2023. These derivatives limit the Company’s interest rate exposure on $650.7 million of outstanding variable-rate debt at December 31, 2022. The Company is focused on prudently limiting exposure to potentially higher interest rates based upon market dynamics and general expected financing activity. Generally, a significant portion of our interest expense is capitalized due to the level of assets we currently have under development; therefore, the current impact of a change in our interest rate on our Consolidated Statements of Operations and Consolidated Statements of Comprehensive Income (Loss) would be less than the total change in interest costs, but we would incur higher cash payments and the development costs of our assets would be higher,. resulting in greater depreciation or cost of sales in later years.

For additional information concerning our debt and management’s estimation process to arrive at a fair value of our debt as required by GAAP, please refer to the Liquidity and Capital Resources section of “ItemItem 7. – Management’s Management's Discussion and Analysis of Financial Condition and Results of Operations”, Note 8 –  7 - Mortgages, Notes and Loans Payable, Net and Note 13 –  9 - Derivative Instruments and HedgingActivities in ourthe Notes to Consolidated Financial Statements.

Statements under Item 8 of this Form 10-K.


The following table summarizes principal cash flows on our debt obligations and related weighted-average interest rates by expected maturity dates as of December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contractual Maturity Date

 

 

 

(In thousands)

    

2018

    

2019

    

2020

    

2021

    

2022

    

Thereafter

    

Total

Mortgages, notes and loans payable

 

$

78,207

 

 

$

256,338

 

 

$

178,836

 

 

$

467,010

 

 

$

251,086

 

 

 

$

1,646,312

 

 

$

2,877,789

Weighted - average interest rate

 

 

4.61

%

 

 

4.70

%

 

 

4.79

%

 

 

4.90

%

 

 

4.89

%

 

 

 

4.89

%

(a)

 

 

2022:
Contractual Maturity Date
thousands20232024202520262027ThereafterTotal
Mortgages, notes and loans payable$166,062 $62,150 $386,314 $556,475 $298,458 $3,332,729 $4,802,188 
Weighted-average interest rate5.47 %5.22 %5.02 %4.88 %4.59 %4.45 %

HHC 2022 FORM 10-K | 62

(a)

The weighted average interest rate is calculated

FINANCIAL STATEMENTS
INDEX
Table of Contents
Index to Financial Statements
Item 8.  Financial Statements and Supplementary Data

Index to Consolidated Financial Statements and Financial Statement SchedulePage
Consolidated Financial Statements
Management’s Report on Internal Control over Financial Reporting
64
Report of Independent Registered Public Accounting Firm (PCAOB ID : 185)
65
Report of Independent Registered Public Accounting Firm (PCAOB ID : 42)
67
Consolidated Balance Sheets as interest expenseof December 31, 2022 and 2021
68
Consolidated Statements of Operations for the year divided by an averageyears ended December 31, 2022, 2021 and 2020
69
Consolidated Statements of the beginning and ending year debt balance, exceptComprehensive Income (Loss) for the year 2025 dueyears ended December 31, 2022, 2021 and 2020
70
Consolidated Statements of Equity for the years ended December 31, 2022, 2021 and 2020
71
Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020
72
Notes to March maturityConsolidated Financial Statements
74
Note 1. Summary of the SeniorSignificant Accounting Policies
74
Note 2. Investments in Unconsolidated Ventures
83
Note 3. Acquisitions and Dispositions
87
Note 4. Impairment
89
Note 5. Other Assets and Liabilities
91
Note 6. Intangibles
92
Note 7. Mortgages, Notes in which case the average debt balance was calculated on a monthly basis.

and Loans Payable, Net
93
Note 8. Fair Value
95
Note 9. Derivative Instruments and Hedging Activities
97
Note 10. Commitments and Contingencies
98
Note 11. Stock-Based Compensation Plans
100
Note 12. Income Taxes
102
Note 13. Warrants
104
Note 14. Accumulated Other Comprehensive Income (Loss)
104
Note 15. Earnings Per Share
105
Note 16. Revenues
106
Note 17. Leases
107
Note 18. Segments
109
Schedule III – Real Estate and Accumulated Depreciation 
111

ITEM 8.  FINANCIALSTATEMENTS AND SUPPLEMENTARY DATA

Information with respect to this Item is set forth beginning on page F-1. See “Item 15. – Exhibits, Financial Statement Schedule” below.

ITEM 9.  CHANGES IN ANDDISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.  CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) that are designed to provide reasonable assurance that information required to be disclosed in our reports to the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and our principal financial and accounting officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by SEC rules, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and our principal financial and accounting officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2017, the end of the period covered by this report. Based on the foregoing, our principal executive officer and principal financial and accounting officer concluded that our disclosure controls and procedures were effective as of December 31, 2017.

Internal Controls over Financial Reporting

There have been no changes in our internal control over financial reporting during the period covered by this report that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

HHC 2022 FORM 10-K | 63

64

Table of Contents

FINANCIAL STATEMENTS
Table of Contents
Index to Financial Statements

Management’s Report on Internal Control Overover Financial Reporting


Management is responsible for establishing and maintaining a system of internal control over financial reporting designed to provide reasonable assurance that transactions are executed in accordance with management authorization and that such transactions are properly recorded and reported in the financial statements, and that records are maintained so as to permit preparation of the financial statements in accordance with U.S. generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Management has assessed the effectiveness of the Company’s internal control over financial reporting utilizing the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated Framework (2013 Framework). Management concluded, based on its assessment, that The Howard Hughes Corporation’s internal control over financial reporting was effective as of December 31, 2017. Ernst & Young,2022.

KPMG LLP, an independent registered public accounting firm, has audited the Company’s internal control over financial reporting as of December 31, 2017,2022, as stated in their report which is included in this Annual Report on Form 10-K.

ITEM 9B.  OTHER INFORMATION

On February 21, 2018, the Company, in connection with the annual compensation review of the Company’s Compensation Committee of the Board of Directors (the “Compensation Committee”), entered into an amended and restated employment agreement with David O’Reilly, the Chief Financial Officer of the Company (the “Amended and Restated Employment Agreement”), in order to, among other things, amend certain provisions of Mr. O’Reilly’s previous employment agreement, dated October 17, 2016 (the “Initial Employment Agreement”) to be consistent with the employment agreements of certain of the Company’s other executive officers (the “Amendments”). The Amendments are summarized below.

HHC 2022 FORM 10-K | 64

·

Mr. O’Reilly’s annual cash bonus eligibility has been changed from Mr. O’Reilly being eligible

FINANCIAL STATEMENTS
Table of Contents
Index to earn up to 140% of his annual base salary based upon the achievement of performance goals established by the Compensation Committee to being eligible to earn a target annual cash bonus of $900,000 (“Target Bonus Amount”), which is based upon the achievement of certain performance goals that will be established annually by the Compensation Committee and subject to certain requirements set forth in Section 162(m) of the Internal Revenue Code of 1986, as amended (the “162(m) Performance Goal”). If the 162(m) Performance Goal is achieved for any given year, then the annual bonus for such year will be equal to at least 60%, but not more than 140%, of the Target Bonus Amount. 

Financial Statements

·

Mr. O’Reilly is no longer eligible for an annual equity award of restricted shares of Company common stock valued at up $1,600,000, and instead, commencing in 2017, and continuing during each subsequent calendar year of his employment, Mr. O’Reilly will be eligible to receive an annual equity award (the “Annual LTIP Award”), which will be awarded each year by the Compensation Committee based upon its evaluation of performance measures and objectives established by the Compensation Committee from time to time. The Annual LTIP Award will be a long-term equity or equity-based incentive award with an aggregate grant value (with respect to the portion of the Annual LTIP Award that is subject to performance metrics, based on the achievement of the applicable performance metrics that cause the award to vest at the level of 100%) on the date of grant equal to $1,200,000, with the number of shares of Company common stock subject to such Annual LTIP Award determined by dividing the aggregate grant value by the closing price per share of Company common stock or as otherwise provided for in The Howard Hughes Corporation Amended and Restated 2010 Incentive Plan (the “Incentive Plan”) (or a successor plan) on the date of grant. Fifty percent of each Annual LTIP Award granted to Mr. O’Reilly will provide for pro rata time vesting over five years (“Time Vesting LTIP Awards”) and the other fifty percent of such award will provide for performance-based vesting (“Performance Vesting LTIP Awards”), and each of the Time Vesting LTIP Awards and the Performance Vesting LTIP Awards will be subject to the terms and conditions of the Incentive Plan (or a successor plan) and any applicable award agreements thereunder.

·

Mr. O’Reilly’s cash severance formula has been changed from being the sum of (1) 200% of his annual base salary, plus (2) 200% of his target annual bonus to the sum of (1) 200% of his annual base salary, plus (2) $1,000,000.

·

The initial term of Mr. O’Reilly’s employment agreement has been extended from October 17, 2022 to December 31, 2022.

The foregoing summary of the Amendments is not intended to be complete and is qualified in its entirety by reference to the full text of the Amended and Restated Employment Agreement filed as Exhibit 10.11 to this Annual Report and incorporated herein by reference. In addition, certain provisions of the Amended and Restated Employment Agreement that have not been amended from the Initial Employment Agreement are summarized in the Company’s Current Report on Form 8-K filed with the Securities Exchange Commission on October 11, 2016.

65

Table of Contents

Report of Independent Registered Public Accounting Firm


To the Stockholders and the Board of Directors of

The Howard Hughes Corporation:

Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting

We have audited the accompanying consolidated balance sheet of The Howard Hughes Corporation

Opinion on Internal Control over Financial Reporting

(the Company) as of December 31, 2022, and the related consolidated statements of operations, comprehensive income (loss), equity and cash flows for the year ended December 31, 2022, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively, referred to as the “consolidated financial statements”). We also have audited The Howard Hughes Corporation’sthe Company’s internal control over financial reporting as of December 31, 2017,2022, based on criteria established in Internal Control—Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Commission.


In our opinion, The Howard Hughes Corporation (the Company)the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year ended December 31, 2022, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2022 based on criteria established in Internal Control – Integrated Framework (2013) issued by the COSO criteria.

We also have audited, in accordance with the standardsCommittee of Sponsoring Organizations of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2017 consolidated financial statements of the Company and our report dated February 26, 2018 expressed an unqualified opinion thereon.

Treadway Commission.


Basis for Opinion

Opinions


The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control overControls Over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audit.audits. We are a public accounting firm registered with the PCAOBPublic Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.


We conducted our auditaudits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.


Our audit of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, andrisk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit providesaudits provide a reasonable basis for our opinion.

opinions.


Definition and Limitations of Internal Control Over Financial Reporting


A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

HHC 2022 FORM 10-K | 65
FINANCIAL STATEMENTS
Table of Contents
Index to Financial Statements

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP 

Dallas, Texas

February 26, 2018

66


Critical Audit Matter

TableThe critical audit matter communicated below is a matter arising from the current period audit of Contents

PART III

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The informationthe consolidated financial statements that was communicated or required by Item 10 is incorporated by referenceto be communicated to the relevant information included in our proxy statement for our 2018 Annual Meeting of Stockholders.

ITEM 11.  EXECUTIVE COMPENSATION

The information required by Item 11 is incorporated by referenceaudit committee and that: (1) relates to accounts or disclosures that are material to the relevant information includedconsolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our proxy statement for our 2018 Annual Meetingopinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.


Master Planned Communities (MPC) cost of Stockholders.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by Item 12sales estimates


As discussed in Note 1 of the consolidated financial statements, when developed residential or commercial land is incorporated by referencesold, the cost of sales includes actual costs incurred and estimates of future development costs, based on relative sales value, that benefit the property sold. For purposes of allocating development costs, estimates of future revenues and future development costs are re-evaluated throughout the year, with adjustments being allocated prospectively to the relevant information included in our proxy statementremaining parcels available for our 2018 Annual Meetingsale. MPC cost of Stockholders.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

sales estimates are highly judgmental as they are sensitive to cost escalation and sales price escalation, which are subject to judgment and affected by expectations about future market or economic conditions. The informationCompany recognized MPC cost of sales of $119.5 million for the year ended December 31, 2022.


We identified the evaluation of estimated future development costs and revenues that drive the MPC cost of sales estimates as a critical audit matter. Subjective auditor judgment and the involvement of valuation professionals with specialized skills and knowledge were required by Item 13 is incorporated by referenceto evaluate the cost escalation and sales price escalation assumptions.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the relevant informationprocess to estimate MPC cost of sales. This included in our proxy statementcontrols related to management’s monitoring and review of key assumptions noted above. We tested the key assumptions related to estimated cost escalation and sales price escalation by:

•agreeing the current year estimates for our 2018 Annual Meeting of Stockholders.

ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by Item 14 is incorporated by referencerevenues and cost to actual results, where applicable

•comparing the relevant information included in our proxy statementCompany’s historical cost escalation and sales price escalation estimates to actual results to assess the Company’s ability to accurately estimate these amounts
•performing site visits for our 2018 Annual Meeting of Stockholders.

PART IV

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULE

(a)

Financial Statements and Financial Statement Schedule.

The Consolidated Financial Statements and Schedule listed incertain MPC developments to compare the accompanying Index to Consolidated Financial Statements and Financial Statement Schedule are filed as part of this Annual Report. No additional financial statement schedules are presented since the required information is not present or not present in amounts sufficient to require submissionoverall status of the schedule or becausedevelopments to what is reflected within the information required is encloseddevelopment cost models.


In addition, we involved valuation specialists with specialized skills and knowledge, who assisted in evaluating assumed cost escalation and sales price escalation by:

•comparing expected price per acre for each product type available for sale to applicable market data
•comparing the Consolidated Financial Statementscost and notes thereto.

(b)

Exhibits.

sales price escalation rates throughout the duration of the development to available market data.

Exhibit No.

Description of Exhibit

3.1

Second Amended and Restated Certificate of Incorporation of the Howard Hughes Corporation (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed May 24, 2016)

3.2

Amendment No. 1 to the Amended and Restated Bylaws of The Howard Hughes Corporation (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed May 24, 2016)

3.3

Certificate of Designations of Series A Junior Participating Preferred Stock, filed with the Secretary of State of Delaware on February 29, 2012 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed February 29, 2012)

4.1

Section 382 Rights Agreement, dated as of February 27, 2012, by and between The Howard Hughes Corporation and Computershare Trust Company, N.A., as rights agent (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed February 29, 2012)

4.2

Amendment No. 1 to Rights Agreement dated as of February 26, 2015, by and between The Howard Hughes Corporation and Computershare Trust Company, N.A., as rights agent (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed March 3, 2015)


/s/KPMG LLP
We have served as the Company’s auditor since 2022.

Dallas, Texas
February 27, 2023
HHC 2022 FORM 10-K | 66

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4.3

FINANCIAL STATEMENTS

Amendment No. 2Table of Contents
Index to Rights Agreement, dated as of January 2, 2018, by and between The Howard Hughes Corporation and Computershare Trust Company, N.A., as rights agent (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed January 2, 2018)Financial Statements

4.4

Indenture, dated as of March 16, 2017 by and between The Howard Hughes Corporation and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on March 21, 2017)

10.1

Form of indemnification agreement for directors and certain executive officers of The Howard Hughes Corporation (incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K, filed November 12, 2010)

10.2

Warrant Agreement, dated November 9, 2010, between The Howard Hughes Corporation and Mellon Investor Services LLC (incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K, filed November 12, 2010)

10.3

Letter Agreement, dated November 9, 2010, between The Howard Hughes Corporation and Pershing Square Capital Management, L.P. (incorporated by reference to Exhibit 10.11 to the Company’s Current Report on Form 8-K, filed November 12, 2010)

10.4

Registration Rights Agreement, dated November 9, 2010, between The Howard Hughes Corporation and Pershing Square Capital Management, L.P., Blackstone Real Estate Partners VI L.P., Blackstone Real Estate Partners (AIV) VI L.P., Blackstone Real Estate Partners VI.F L.P., Blackstone Real Estate Partners VI.TE.1 L.P., Blackstone Real Estate Partners VI.TE.2 L.P., Blackstone Real Estate Holdings VI L.P., and Blackstone GGP Principal Transaction Partners L.P. (incorporated by reference to Exhibit 99.4 to the Company’s Current Report on Form 8-K, filed November 12, 2010)

10.5*+

Form of Restricted Stock Agreement for Nonemployee Directors under The Howard Hughes Corporation 2010 Amended and Restated Incentive Plan

10.6*+

Form of Time-based Restricted Stock Agreement for Executive Officers under the Howard Hughes Corporation Amended and Restated 2010 Incentive Plan

10.7*+

Form of Performance-based Restricted Stock Agreement for Executive Officers under The Howard Hughes Corporation Amended and Restated 2010 Incentive Plan

10.8*

Employment Agreement, dated as of August 29, 2017, between The Howard Hughes Corporation and David R. Weinreb (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed September 5, 2017)

10.9*

Employment Agreement, dated as of October 2, 2017, between The Howard Hughes Corporation and Grant Herlitz (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed October 5, 2017)

10.10*

Employment Agreement, dated as of November 6, 2017, between The Howard Hughes Corporation and Peter F. Riley (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed November 9, 2017)

10.11*+

Amended and Restated Employment Agreement, dated as of February 21, 2018, between The Howard Hughes Corporation and David O’Reilly.

10.12*

Restricted Stock Agreement, dated as of August 29, 2017, between The Howard Hughes Corporation and David R. Weinreb (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed September 5, 2017)

10.13*

Restricted Stock Agreement, dated as of October 2, 2017, between The Howard Hughes Corporation and Grant Herlitz (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed October 5, 2017)

10.14*

Restricted Stock Agreement, dated as of November 8, 2017, between The Howard Hughes Corporation and Peter F. Riley (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed November 9, 2017)

10.15*

Warrant Grant Agreement, dated as of June 16, 2017, between The Howard Hughes Corporation and David R. Weinreb (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed June 20, 2017)

10.16*

Warrant Grant Agreement, dated as of October 4, 2017, between The Howard Hughes Corporation and Grant Herlitz (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed October 5, 2017)

10.17*

Warrant Purchase Agreement, dated October 7, 2016, between The Howard Hughes Corporation and David O’Reilly (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed October 11, 2016)

68

Table of Contents

10.18

Loan Agreement dated as of September 29, 2011, by and among Victoria Ward, Limited along with certain Victoria Ward, Limited’s subsidiaries, as borrowers, Wells Fargo Bank, National Association, as Administrative Agent and lead lender, CIBC, First Hawaiian Bank, Bank of Hawaii and Central Pacific Bank, as lenders, and Wells Fargo Securities, L.L.C., as Sole Lead Arranger and Sole Bookrunner (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed October 4, 2011)

10.19

Loan Agreement dated as of July 15, 2014, by and among The Shops at Summerlin North, LP, The Shops at Summerlin South, LP, Wells Fargo Bank, National Association, as Administrative Agent and lead lender, U.S. Bank National Association, as Syndication Agent and a lender, the other lending institutions party thereto, and Wells Fargo Securities, L.L.C., as sole Lead Arranger and Sole Bookrunner (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed July 16, 2014)

10.20*

The Howard Hughes Corporation 2010 Amended and Restated Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed June 14, 2012)

10.21*

Form of The Howard Hughes Corporation Deferred Compensation Plan (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K, filed September 17, 2014)

10.22

Settlement of Tax Indemnity and Mutual Release Agreement dates as of December 12, 2014, by and between The Howard Hughes Corporation, a Delaware Corporation, and General Growth Properties, Inc., a Delaware Corporation (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed December 18, 2014)

10.23*

The Howard Hughes Corporation Management Co., LLC Separation Benefit Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed August 16, 2017)

21.1+

List of Subsidiaries

23.1+

Consent of Ernst & Young LLP

24.1+

Power of Attorney

31.1+

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2+

Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1+

Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS+

XBRL Instance Document

101.SCH+

XBRL Taxonomy Extension Schema Document

101.CAL+

XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB+

XBRL Taxonomy Extension Label Linkbase Document

101.PRE+

XBRL Taxonomy Extension Presentation  Linkbase Document

101.DEF+

XBRL Taxonomy Extension Definition Linkbase Document

*Management contract, compensatory plan or arrangement

+Filed herewith

Attached is Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Operations for the years ended December 31, 2017, 2016 and 2015, (ii) the Consolidated Balance Sheets at December 31, 2017 and 2016, (iii) the Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015, (iv) the Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2017, 2016 and 2015.

69

Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

THE HOWARD HUGHES CORPORATION

/s/ David R. Weinreb

David R. Weinreb

Chief Executive Officer

February 26, 2018

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature

Title

Date

*  

Chairman of the Board and Director 

February 26, 2018

William Ackman

/s/ David R. Weinreb

Director and Chief Executive Officer

February 26, 2018

David R. Weinreb

(Principal Executive Officer)

/s/ David R. O’Reilly

Chief Financial
Officer (Principal Financial and Accounting Officer)

February 26, 2018

David O’Reilly

*

Director

February 26, 2018

Adam Flatto

*

Director

February 26, 2018

Jeffrey Furber

*

Director

February 26, 2018

Beth Kaplan

*

Director

February 26, 2018

Allen Model

*

Director

February 26, 2018

R. Scot Sellers

*

Director

February 26, 2018

Steven Shepsman

*

Director

February 26, 2018

Burton M. Tansky

*

Director

February 26, 2018

Mary Ann Tighe

*/s/ David R. Weinreb

David R. Weinreb

Attorney-in-fact

70

Table of Contents

THE HOWARD HUGHES CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE

9

Consolidated Financial Statements

Page Number

Report of Independent Registered Public Accounting Firm

F-2

Consolidated Balance Sheets as of December 31, 2017 and 2016

F-3

Consolidated Statements of Operations for the years ended December 31, 2017, 2016 and 2015

F-4

Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2017, 2016 and 2015

F-5

Consolidated Statements of Equity for the years ended December 31, 2017, 2016 and 2015

F-6

Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015

F-7

Notes to Consolidated Financial Statements

F-9

Financial Statement Schedule

Schedule III – Real Estate and Accumulated Depreciation

F-47

F-1

Table of Contents

Report of Independent Registered Public Accounting Firm


To the Stockholders and the Board of Directors of

The Howard Hughes Corporation


Opinion on the Financial Statements


We have audited the accompanying consolidated balance sheetssheet of The Howard Hughes Corporation (the Company) as of December 31, 2017 and 2016,2021, the related consolidated statements of operations, comprehensive income (loss), equity and cash flows for each of the threetwo years in the period ended December 31, 2017,2021, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively(collectively referred to as the consolidated“consolidated financial statements)statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2017 and 2016,2021, and the results of its operations and its cash flows for each of the threetwo years in the period ended December 31, 2017,2021, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 26, 2018 expressed an unqualified opinion thereon.


Basis for Opinion


These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOBPublic Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.


We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.



/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2013.

Dallas,from 2013 to 2021.


Houston, Texas

February 26, 2018

28, 2022


F-2


HHC 2022 FORM 10-K | 67

Table of Contents

FINANCIAL STATEMENTS
Table of Contents
Index to Financial Statements

THE HOWARD HUGHES CORPORATION

CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

December 31, 

December 31,

(In thousands, except share amounts)

 

2017

 

2016

Assets:

    

 

 

 

 

 

Investment in real estate:

 

 

 

 

 

 

Master Planned Community assets

 

$

1,642,278

 

$

1,669,561

thousands except par values and share amountsthousands except par values and share amounts20222021
ASSETSASSETS
Master Planned Communities assetsMaster Planned Communities assets$2,411,526 $2,282,768 

Buildings and equipment

 

 

2,238,617

 

 

2,027,363

Buildings and equipment4,246,389 3,962,441 

Less: accumulated depreciation

 

 

(321,882)

 

 

(245,814)

Less: accumulated depreciation(867,700)(743,311)

Land

 

 

277,932

 

 

320,936

Land312,230 322,439 

Developments

 

 

1,196,582

 

 

961,980

Developments1,125,027 1,208,907 

Net property and equipment

 

 

5,033,527

 

 

4,734,026

Investment in Real Estate and Other Affiliates

 

 

76,593

 

 

76,376

Net investment in real estate

 

 

5,110,120

 

 

4,810,402

Net investment in real estate7,227,472 7,033,244 
Investments in unconsolidated venturesInvestments in unconsolidated ventures246,171 369,949 
Net investment in lease receivableNet investment in lease receivable2,895 2,913 

Cash and cash equivalents

 

 

861,059

 

 

665,510

Cash and cash equivalents626,653 843,212 
Restricted cashRestricted cash472,284 373,425 

Accounts receivable, net

 

 

13,041

 

 

9,883

Accounts receivable, net103,437 86,388 

Municipal Utility District receivables, net

 

 

184,811

 

 

150,385

Municipal Utility District receivables, net473,068 387,199 

Notes receivable, net

 

 

5,864

 

 

155

Notes receivable, net3,339 7,561 

Deferred expenses, net

 

 

80,901

 

 

64,531

Deferred expenses, net128,865 119,825 
Operating lease right-of-use assets, netOperating lease right-of-use assets, net46,926 57,022 

Prepaid expenses and other assets, net

 

 

473,268

 

 

666,516

Prepaid expenses and other assets, net272,353 300,956 

Total assets

 

$

6,729,064

 

$

6,367,382

Total assets$9,603,463 $9,581,694 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

LIABILITIESLIABILITIES

Mortgages, notes and loans payable, net

 

$

2,857,945

 

$

2,690,747

Mortgages, notes and loans payable, net$4,747,183 $4,591,157 

Deferred tax liabilities

 

 

160,850

 

 

200,945

Warrant liabilities

 

 

 —

 

 

332,170

Operating lease obligationsOperating lease obligations51,321 69,363 
Deferred tax liabilities, netDeferred tax liabilities, net254,336 204,837 

Accounts payable and accrued expenses

 

 

521,718

 

 

572,010

Accounts payable and accrued expenses944,511 983,167 

Total liabilities

 

 

3,540,513

 

 

3,795,872

Total liabilities5,997,351 5,848,524 

 

 

 

 

 

 

Commitments and Contingencies (see Note 10)

 

 

 

 

 

 

Commitments and Contingencies (see Note 10)
Redeemable noncontrolling interestRedeemable noncontrolling interest— 22,500 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

Preferred stock: $.01 par value; 50,000,000 shares authorized, none issued

 

 

 —

 

 

 —

Common stock: $.01 par value; 150,000,000 shares authorized, 43,300,253 shares

issued and 43,270,880 outstanding as of December 31, 2017 and 39,802,064 shares

issued and 39,790,003 outstanding as of December 31, 2016

 

 

433

 

 

398

EQUITYEQUITY
Preferred stock: $0.01 par value; 50,000,000 shares authorized, none issuedPreferred stock: $0.01 par value; 50,000,000 shares authorized, none issued— — 
Common stock: $0.01 par value; 150,000,000 shares authorized, 56,226,273 issued and 49,801,997 outstanding as of December 31, 2022, and 56,173,276 shares issued and 54,065,661 outstanding as of December 31, 2021Common stock: $0.01 par value; 150,000,000 shares authorized, 56,226,273 issued and 49,801,997 outstanding as of December 31, 2022, and 56,173,276 shares issued and 54,065,661 outstanding as of December 31, 2021564 563 

Additional paid-in capital

 

 

3,302,502

 

 

2,853,269

Additional paid-in capital3,972,561 3,960,418 

Accumulated deficit

 

 

(109,508)

 

 

(277,912)

Accumulated other comprehensive loss

 

 

(6,965)

 

 

(6,786)

Treasury stock, at cost, 29,373 shares and 12,061 shares as of December 31, 2017 and 2016, respectively

 

 

(3,476)

 

 

(1,231)

Retained earnings (accumulated deficit)Retained earnings (accumulated deficit)168,077 (16,456)
Accumulated other comprehensive income (loss)Accumulated other comprehensive income (loss)10,335 (14,457)
Treasury stock, at cost, 6,424,276 shares as of December 31, 2022, and 2,107,615 shares as of December 31, 2021Treasury stock, at cost, 6,424,276 shares as of December 31, 2022, and 2,107,615 shares as of December 31, 2021(611,038)(220,073)

Total stockholders' equity

 

 

3,182,986

 

 

2,567,738

Total stockholders' equity3,540,499 3,709,995 

Noncontrolling interests

 

 

5,565

 

 

3,772

Noncontrolling interests65,613 675 

Total equity

 

 

3,188,551

 

 

2,571,510

Total equity3,606,112 3,710,670 

Total liabilities and equity

 

$

6,729,064

 

$

6,367,382

Total liabilities and equity$9,603,463 $9,581,694 


See Notes to Consolidated Financial Statements.

F-3

HHC 2022 FORM 10-K | 68

Table of Contents

FINANCIAL STATEMENTS
Table of Contents
Index to Financial Statements

THE HOWARD HUGHES CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31, 

(In thousands, except per share amounts)

    

2017

    

2016

    

2015

Revenues:

 

 

 

 

 

 

 

 

 

Condominium rights and unit sales

 

$

464,251

 

$

485,634

 

$

305,284

Master Planned Community land sales

 

 

248,595

 

 

215,318

 

 

187,399

Minimum rents

 

 

183,025

 

 

173,268

 

 

150,760

Tenant recoveries

 

 

45,814

 

 

44,330

 

 

39,542

Hospitality revenues

 

 

76,020

 

 

62,252

 

 

45,374

Builder price participation

 

 

22,835

 

 

21,386

 

 

26,846

Other land revenues

 

 

28,166

 

 

16,232

 

 

14,803

Other rental and property revenues

 

 

31,414

 

 

16,585

 

 

27,080

Total revenues

 

 

1,100,120

 

 

1,035,005

 

 

797,088

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

Condominium rights and unit cost of sales

 

 

338,361

 

 

319,325

 

 

191,606

Master Planned Community cost of sales

 

 

121,116

 

 

95,727

 

 

88,065

Master Planned Community operations

 

 

38,777

 

 

42,371

 

 

44,907

Other property operating costs

 

 

91,729

 

 

65,978

 

 

72,751

Rental property real estate taxes

 

 

29,185

 

 

26,847

 

 

24,138

Rental property maintenance costs

 

 

13,432

 

 

12,392

 

 

10,712

Hospitality operating costs

 

 

56,362

 

 

49,359

 

 

34,839

Provision for doubtful accounts

 

 

2,710

 

 

5,664

 

 

4,030

Demolition costs

 

 

1,923

 

 

2,212

 

 

3,297

Development-related marketing costs

 

 

20,504

 

 

22,184

 

 

25,466

General and administrative

 

 

89,882

 

 

86,588

 

 

81,345

Depreciation and amortization

 

 

132,252

 

 

95,864

 

 

98,997

Total expenses

 

 

936,233

 

 

824,511

 

 

680,153

 

 

 

 

 

 

 

 

 

 

Operating income before other items

 

 

163,887

 

 

210,494

 

 

116,935

 

 

 

 

 

 

 

 

 

 

Other:

 

 

 

 

 

 

 

 

 

Provision for impairment

 

 

 —

 

 

(35,734)

 

 

 —

Gains on sales of properties

 

 

51,367

 

 

140,549

 

 

 —

Other (loss) income, net

 

 

3,248

 

 

11,453

 

 

1,829

Total other

 

 

54,615

 

 

116,268

 

 

1,829

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

218,502

 

 

326,762

 

 

118,764

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

4,043

 

 

1,359

 

 

586

Interest expense

 

 

(64,568)

 

 

(65,724)

 

 

(59,744)

Loss on redemption of senior notes due 2021

 

 

(46,410)

 

 

 —

 

 

 —

Warrant liability (loss) gain

 

 

(43,443)

 

 

(24,410)

 

 

58,320

Gain on acquisition of joint venture partner's interest

 

 

23,332

 

 

27,088

 

 

 —

Gain (loss) on disposal of operating assets

 

 

3,868

 

 

(1,117)

 

 

29,073

Equity in earnings from Real Estate and Other Affiliates

 

 

25,498

 

 

56,818

 

 

3,721

Income before taxes

 

 

120,822

 

 

320,776

 

 

150,720

(Benefit) provision for income taxes

 

 

(45,801)

 

 

118,450

 

 

24,001

Net income

 

 

166,623

 

 

202,326

 

 

126,719

Net loss (income) attributable to noncontrolling interests

 

 

1,781

 

 

(23)

 

 

 —

Net income attributable to common stockholders

 

$

168,404

 

$

202,303

 

$

126,719

 

 

 

 

 

 

 

 

 

 

Basic income per share:

 

$

4.07

 

$

5.12

 

$

3.21

 

 

 

 

 

 

 

 

 

 

Diluted income per share:

 

$

3.91

 

$

4.73

 

$

1.60

Year Ended December 31,
thousands except per share amounts202220212020
REVENUES
Condominium rights and unit sales$677,078 $514,597 $1,143 
Master Planned Communities land sales316,065 346,217 233,044 
Rental revenue399,103 369,330 323,182 
Other land, rental and property revenues144,481 152,619 105,048 
Builder price participation71,761 45,138 37,072 
Total revenues1,608,488 1,427,901 699,489 
EXPENSES
Condominium rights and unit cost of sales483,983 414,199 108,229 
Master Planned Communities cost of sales119,466 153,630 101,505 
Operating costs317,389 293,999 226,791 
Rental property real estate taxes54,033 55,398 52,815 
Provision for (recovery of) doubtful accounts1,959 (459)6,009 
General and administrative81,772 81,990 109,402 
Depreciation and amortization200,361 205,100 217,467 
Other11,977 10,668 8,166 
Total expenses1,270,940 1,214,525 830,384 
OTHER
Provision for impairment— (13,068)(48,738)
Gain (loss) on sale or disposal of real estate and other assets, net29,678 53,079 59,942 
Other income (loss), net1,909 (11,515)130 
Total other31,587 28,496 11,334 
Operating income (loss)369,135 241,872 (119,561)
Interest income3,818 107 2,368 
Interest expense(110,891)(130,036)(132,257)
Gain (loss) on extinguishment of debt(2,377)(38,014)(13,169)
Equity in earnings (losses) from unconsolidated ventures(14,549)(9,852)271,099 
Income (loss) before income taxes245,136 64,077 8,480 
Income tax expense (benefit)60,500 15,153 11,653 
Net income (loss)184,636 48,924 (3,173)
Net (income) loss attributable to noncontrolling interests(103)7,176 (22,981)
Net income (loss) attributable to common stockholders$184,533 $56,100 $(26,154)
Basic income (loss) per share$3.65 $1.03 $(0.50)
Diluted income (loss) per share$3.65 $1.03 $(0.50)

See Notes to Consolidated Financial Statements.

F-4

HHC 2022 FORM 10-K | 69

Table of Contents

FINANCIAL STATEMENTS
Table of Contents
Index to Financial Statements

THE HOWARD HUGHES CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31, 

(In thousands)

    

2017

    

2016

    

2015

Net income

 

$

166,623

 

$

202,326

 

$

126,719

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

Interest rate swaps (a)

 

 

(9)

 

 

2,196

 

 

40

Capitalized swap interest expense (b)

 

 

(170)

 

 

(203)

 

 

(217)

Pension adjustment (c)  

 

 

 —

 

 

(890)

 

 

 —

Other comprehensive income (loss)

 

 

(179)

 

 

1,103

 

 

(177)

Comprehensive income

 

 

166,444

 

 

203,429

 

 

126,542

Comprehensive income attributable to noncontrolling interests

 

 

1,781

 

 

(23)

 

 

 —

Comprehensive income attributable to common stockholders

 

$

168,225

 

$

203,406

 

$

126,542

Year Ended December 31,
thousands202220212020
Net income (loss)$184,636 $48,924 $(3,173)
Other comprehensive income (loss)
Interest rate caps and swaps (a)31,698 17,960 (23,070)
Pension adjustment (b)(183)452 (84)
Reclassification of the Company's share of previously deferred derivative gains to net income (c)(6,723)— — 
Deconsolidation of 110 North Wacker (d)— — 12,934 
Share of investee's other comprehensive income (e)— 5,721 1,002 
Other comprehensive income (loss)24,792 24,133 (9,218)
Comprehensive income (loss)209,428 73,057 (12,391)
Comprehensive (income) loss attributable to noncontrolling interests(103)7,176 (22,981)
Comprehensive income (loss) attributable to common stockholders$209,325 $80,233 $(35,372)

(a)

Net of deferred tax benefit of $0.3 million for the year ended December 31, 2017, and deferred tax expense of $1.3 million and $1.0 million for the years ended December 31, 2016 and 2015, respectively.

(a)Amounts are shown net of deferred tax expense of $9.5 million for the year ended December 31, 2022, deferred tax expense of $5.1 million for the year ended December 31, 2021, and deferred tax benefit of $5.3 million for the year ended December 31, 2020.

(b)

Net of deferred tax benefit of $0.1 million,  $0.1 million and $0.1 million for the years ended December 31, 2017, 2016 and 2015, respectively.

(b)The deferred tax impact was not meaningful for the years ended December 31, 2022, 2021 and 2020.

(c)

Net of deferred tax benefit of $0, $0.5 million and $0 for the years ended December 31, 2017, 2016 and 2015, respectively.

(c)In March 2022, the Company completed the sale of its ownership interest in 110 North Wacker and released a net of $6.7 million from Accumulated other comprehensive income (loss), representing the Company’s $8.6 million share of previously deferred gains associated with the Venture’s derivative instruments net of tax expense of $1.9 million. See Note 2 - Investments in Unconsolidated Ventures for additional information.

(d)The amount for 2020 represents the derecognition of Other comprehensive income (loss) related to interest rate collars on the 110 North Wacker debt, shown net of deferred tax expense of $1.0 million.
(e)Amounts are shown net of deferred tax expense of $1.6 million for the year ended December 31, 2021, and $0.3 million for the year ended December 31, 2020.

See Notes to Consolidated Financial Statements.


F-5

HHC 2022 FORM 10-K | 70

Table of Contents

FINANCIAL STATEMENTS
Table of Contents
Index to Financial Statements

THE HOWARD HUGHES CORPORATION

CONSOLIDATED STATEMENTS OF EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

Other

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

Common Stock

 

Paid-In

 

Accumulated

 

Comprehensive

 

Treasury Stock

 

Stockholders'

 

Noncontrolling

 

Total

(In thousands, except shares)

    

Shares

    

Amount

    

Capital

    

Deficit

    

(Loss)

    

Shares

    

Amount

    

Equity

 

Interests

    

Equity

Balance January 1, 2015

 

39,638,094

 

$

396

 

$

2,838,013

 

$

(606,934)

 

$

(7,712)

 

 -

 

$

 -

 

$

2,223,763

 

$

3,743

 

$

2,227,506

Net income

 

 -

 

 

 -

 

 

 -

 

 

126,719

 

 

 -

 

 -

 

 

 -

 

 

126,719

 

 

 -

 

 

126,719

Adjustment to noncontrolling interest

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 -

 

 

 -

 

 

 -

 

 

29

 

 

29

Interest rate swaps, net of tax $966

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

40

 

 -

 

 

 -

 

 

40

 

 

 -

 

 

40

Capitalized swap interest, net of tax $74

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(217)

 

 -

 

 

 -

 

 

(217)

 

 

 -

 

 

(217)

Stock plan activity

 

76,744

 

 

 2

 

 

9,810

 

 

 -

 

 

 -

 

 -

 

 

 -

 

 

9,812

 

 

 -

 

 

9,812

Balance December 31, 2015

 

39,714,838

 

 

398

 

 

2,847,823

 

 

(480,215)

 

 

(7,889)

 

 -

 

 

 -

 

 

2,360,117

 

 

3,772

 

 

2,363,889

Net income

 

 -

 

 

 -

 

 

 -

 

 

202,303

 

 

 -

 

 -

 

 

 -

 

 

202,303

 

 

23

 

 

202,326

Preferred dividend payment on behalf of subsidiary

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 -

 

 

 -

 

 

 -

 

 

(23)

 

 

(23)

Interest rate swaps, net of tax $1,345

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

2,196

 

 -

 

 

 -

 

 

2,196

 

 

 -

 

 

2,196

Pension adjustment, net of tax of $543

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(890)

 

 -

 

 

 -

 

 

(890)

 

 

 -

 

 

(890)

Capitalized swap interest, net of tax $109

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(203)

 

 -

 

 

 -

 

 

(203)

 

 

 -

 

 

(203)

Issuance of management warrants

 

 -

 

 

 -

 

 

1,000

 

 

 -

 

 

 -

 

 -

 

 

 -

 

 

1,000

 

 

 -

 

 

1,000

Acquisition of noncontrolling partner's interest

 

 -

 

 

 -

 

 

(5,000)

 

 

 -

 

 

 -

 

 -

 

 

 -

 

 

(5,000)

 

 

 -

 

 

(5,000)

Stock plan activity

 

87,226

 

 

 -

 

 

9,446

 

 

 -

 

 

 -

 

 -

 

 

 -

 

 

9,446

 

 

 -

 

 

9,446

Treasury stock activity

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

(12,061)

 

 

(1,231)

 

 

(1,231)

 

 

 -

 

 

(1,231)

Balance, December 31, 2016

 

39,802,064

 

 

398

 

 

2,853,269

 

 

(277,912)

 

 

(6,786)

 

(12,061)

 

 

(1,231)

 

 

2,567,738

 

 

3,772

 

 

2,571,510

Net income

 

 -

 

 

 -

 

 

 -

 

 

168,404

 

 

 -

 

 -

 

 

 -

 

 

168,404

 

 

(1,781)

 

 

166,623

Preferred dividend payment on behalf of subsidiary

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 -

 

 

 -

 

 

 -

 

 

(12)

 

 

(12)

Initial consolidation of HOAs

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 -

 

 

 -

 

 

 -

 

 

3,586

 

 

3,586

Interest rate swaps, net of tax of $323

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(9)

 

 -

 

 

 -

 

 

(9)

 

 

 -

 

 

(9)

Capitalized swap interest, net of tax of $91

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(170)

 

 -

 

 

 -

 

 

(170)

 

 

 -

 

 

(170)

Stock plan activity

 

445,736

 

 

 4

 

 

21,651

 

 

 -

 

 

 -

 

(17,312)

 

 

(2,245)

 

 

19,410

 

 

 -

 

 

19,410

Exercise of warrants

 

3,052,453

 

 

31

 

 

375,582

 

 

 -

 

 

 -

 

 -

 

 

 -

 

 

375,613

 

 

 -

 

 

375,613

Issuance of management warrants

 

 -

 

 

 -

 

 

52,000

 

 

 -

 

 

 -

 

 -

 

 

 -

 

 

52,000

 

 

 -

 

 

52,000

Balance, December 31, 2017

 

43,300,253

 

$

433

 

$

3,302,502

 

$

(109,508)

 

$

(6,965)

 

(29,373)

 

$

(3,476)

 

$

3,182,986

 

$

5,565

 

$

3,188,551

RetainedAccumulated
AdditionalEarningsOtherTotal
thousands except sharesCommon StockPaid-In(AccumulatedComprehensiveTreasury StockStockholders'NoncontrollingTotal
SharesAmountCapitalDeficit)Income (Loss)SharesAmountEquityInterestsEquity
Balance, December 31, 201943,635,893 $437 $3,343,983 $(46,385)$(29,372)(1,050,260)$(120,530)$3,148,133 $184,855 $3,332,988 
Net income (loss), excluding income of $22,881 attributable to redeemable noncontrolling interest—— — (26,154)— — — (26,154)100 (26,054)
Interest rate swaps, net of tax expense (benefit) of $(5,260)—— — — (23,070)— — (23,070)— (23,070)
Pension adjustment, net of tax expense (benefit) of $87—— — — (84)— — (84)— (84)
Reclassification of redeemable noncontrolling interest to temporary equity—— — — — — — — (6,091)(6,091)
Share of investee's other comprehensive income, net of tax expense (benefit) of $285— — — — 1,002 — — 1,002 — 1,002 
Derecognition of 110 North Wacker, net of tax expense (benefit) of $951 (a)— — — 1 12,934 — — 12,935 (178,444)(165,509)
Adoption of ASU 2016-13 (b)—— — (18)— — — (18)— (18)
Issuance of common shares12,270,900 123 593,493 — — — — 593,616 — 593,616 
Stock plan activity136,021 2 9,802 — — (20,298)(1,561)8,243 — 8,243 
Balance, December 31, 202056,042,814 $562 $3,947,278 $(72,556)$(38,590)(1,070,558)$(122,091)$3,714,603 $420 $3,715,023 
Net income (loss), excluding income (loss) of $(7,431) attributable to redeemable noncontrolling interest— — — 56,100 — — — 56,100 255 56,355 
Interest rate swaps, net of tax expense (benefit) of $5,080— — — — 17,960 — — 17,960 — 17,960 
Pension adjustment, net of tax expense (benefit) of $136— — — — 452 — — 452 — 452 
Share of investee's other comprehensive income, net of tax expense (benefit) of $1,627— — — — 5,721 — — 5,721 — 5,721 
Issuance of common shares— — (5)— — — — (5)— (5)
Repurchase of common shares— — — — — (1,023,284)(96,620)(96,620)(96,620)
Stock plan activity130,462 1 13,145 — — (13,773)(1,362)11,784 — 11,784 
Balance, December 31, 202156,173,276 $563 $3,960,418 $(16,456)$(14,457)(2,107,615)$(220,073)$3,709,995 $675 $3,710,670 
Net income (loss)— — — 184,533 — — — 184,533 103 184,636 
Interest rate swaps, net of tax expense (benefit) of $9,460— — — — 31,698 — — 31,698 — 31,698 
Pension adjustment, net of tax expense (benefit) of $(71)— — — — (183)— — (183)— (183)
Deconsolidation of Ward Village homeowners’ associations— — — — — — — — (211)(211)
Issuance of Teravalis noncontrolling interest— — — — — — — — 65,046 65,046 
Reclassification of the Company’s share of previously deferred derivative gains, net of tax expense of $1,912 (c)— — — — (6,723)— — (6,723)— (6,723)
Repurchase of common shares— — — — — (4,283,874)(388,372)(388,372)— (388,372)
Stock plan activity52,997 1 12,143 — — (32,787)(2,593)9,551 — 9,551 
Balance, December 31, 202256,226,273 $564 $3,972,561 $168,077 $10,335 (6,424,276)$(611,038)$3,540,499 $65,613 $3,606,112 

(a)Related to deconsolidation of 110 North Wacker. Refer to Note 2 - Investments in Unconsolidated Ventures for additional information.
(b)Related to the adoption of ASU 2016-13, Financial Instruments-Credit Losses (Topic 326) and its related amendments.
(c)In March 2022, the Company completed the sale of its ownership interest in 110 North Wacker and released a net of $6.7 million from Accumulated other comprehensive income (loss), representing the Company’s $8.6 million share of previously deferred gains associated with the Venture’s derivative instruments net of tax expense of $1.9 million. See Note 2 - Investments in Unconsolidated Ventures for additional information.

See Notes to Consolidated Financial Statements.

F-6

HHC 2022 FORM 10-K | 71

Table of Contents

FINANCIAL STATEMENTS
Table of Contents
Index to Financial Statements

THE HOWARD HUGHES CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

(in thousands)

 

2017

 

 

2016

 

 

2015

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

 

Net income

$

166,623

 

$

202,326

 

$

126,719

Adjustments to reconcile net income to cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

116,401

 

 

81,878

 

 

82,275

Amortization

 

15,851

 

 

13,986

 

 

16,722

Amortization of deferred financing costs

 

5,587

 

 

6,977

 

 

5,734

Amortization of intangibles other than in-place leases

 

(1,327)

 

 

(1,857)

 

 

462

Straight-line rent amortization

 

(5,401)

 

 

(7,401)

 

 

(4,985)

Deferred income taxes

 

(43,463)

 

 

113,698

 

 

21,152

Restricted stock and stock option amortization

 

7,385

 

 

6,707

 

 

7,284

Net gain on sales and acquisitions of properties

 

(78,568)

 

 

(166,520)

 

 

(29,073)

Loss on redemption of senior notes due 2021

 

46,410

 

 

 -

 

 

 -

Warrant liability loss (gain)

 

43,443

 

 

24,410

 

 

(58,320)

Equity in earnings from Real Estate and Other Affiliates, net of distributions

 

(9,325)

 

 

(19,329)

 

 

1,182

Provision for doubtful accounts

 

2,710

 

 

5,664

 

 

4,030

Master Planned Community land acquisitions

 

(4,391)

 

 

(94)

 

 

(7,293)

Master Planned Community development expenditures

 

(193,087)

 

 

(149,592)

 

 

(197,020)

Master Planned Community cost of sales

 

107,218

 

 

88,065

 

 

69,104

Condominium development expenditures

 

(352,813)

 

 

(330,720)

 

 

(191,313)

Condominium rights and units cost of sales

 

338,361

 

 

319,325

 

 

191,606

Deferred rental income

 

 —

 

 

 —

 

 

46,366

Provision for impairment

 

 —

 

 

35,734

 

 

 —

Percentage of completion revenue recognition from sale of condominium rights

 

(464,251)

 

 

(485,634)

 

 

(305,284)

Net Changes:

 

 

 

 

 

 

 

 

Accounts and notes receivable

 

24,034

 

 

29,295

 

 

50,228

Prepaid expenses and other assets

 

1,091

 

 

2,763

 

 

(1,869)

Change in restricted cash operating accounts

 

(9,418)

 

 

 —

 

 

 —

Condominium Deposits Received

 

315,901

 

 

465,701

 

 

81,881

Deferred expenses

 

(15,156)

 

 

(8,911)

 

 

(11,743)

Accounts payable and accrued expenses

 

8,181

 

 

(46,322)

 

 

29,867

Condominium Deposits Held in Escrow

 

(315,901)

 

 

(465,701)

 

 

(81,881)

Condominium Deposits Released from Escrow

 

613,692

 

 

348,745

 

 

177,724

Other, net

 

(755)

 

 

(4,278)

 

 

375

 Cash provided by operating activities

 

319,032

 

 

58,915

 

 

23,930

 

 

 

 

 

 

 

 

 

Cash Flows from  Investing Activities:

 

 

 

 

 

 

 

 

Property and equipment expenditures

 

(6,968)

 

 

(9,662)

 

 

(15,439)

Operating Property Improvements

 

(14,389)

 

 

(20,247)

 

 

(8,409)

Property Development and Redevelopment

 

(369,086)

 

 

(402,669)

 

 

(578,506)

Reimbursement of development cost

 

12,777

 

 

4,582

 

 

 —

Acquisition of assets

 

(23,299)

 

 

(25,480)

 

 

 —

Proceeds from sales of properties

 

88,384

 

 

410,917

 

 

25,139

Proceeds from insurance claims

 

 —

 

 

3,107

 

 

 —

Investment in KR Holdings, LLC

 

 —

 

 

 —

 

 

9,121

Notes issued to Real Estate and Other Affiliates and third party

 

(5,252)

 

 

(25,000)

 

 

 —

Proceeds from repayment of note to Real Estate and Other Affiliates

 

 —

 

 

25,000

 

 

 —

Distributions from Real Estate and Other Affiliates

 

 —

 

 

16,550

 

 

 —

Investments in Real Estate and Other Affiliates, net

 

(1,138)

 

 

(11,056)

 

 

(2,171)

Change in restricted cash

 

(3,710)

 

 

(4,605)

 

 

(6,580)

Other

 

 —

 

 

 —

 

 

1,277

 Cash used in investing activities

 

(322,681)

 

 

(38,563)

 

 

(575,568)

 Year Ended December 31,
thousands202220212020
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)$184,636 $48,924 $(3,173)
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:
Depreciation180,201 185,418 198,556 
Amortization16,834 16,891 18,200 
Amortization of deferred financing costs10,754 10,301 13,301 
Amortization of intangibles other than in-place leases3,275 2,843 680 
Straight-line rent amortization(8,468)(9,278)(14,204)
Deferred income taxes42,022 10,356 10,827 
Restricted stock and stock option amortization11,895 9,885 5,983 
Net gain on sale of properties(29,687)(53,057)(13,710)
Net gain on sale of equity method investments(5,016)— (1,076)
Net gain on sale of lease receivable— — (38,124)
Proceeds from the sale of lease receivable— — 64,155 
(Gain) loss on extinguishment of debt2,377 38,014 9,604 
Impairment charges— 15,335 62,384 
Equity in (earnings) losses from unconsolidated ventures, net of distributions and impairment charges28,081 52,390 (264,416)
Provision for doubtful accounts(2,235)(2,027)21,403 
Master Planned Community land acquisitions— (574,253)— 
Master Planned Community development expenditures(396,125)(322,255)(228,402)
Master Planned Community cost of sales111,723 144,933 91,383 
Condominium development expenditures(340,793)(345,289)(244,642)
Condominium rights and units cost of sales465,711 394,427 100,584 
Net Changes:
Accounts and notes receivable87,665 23,738 78,647 
Prepaid expenses and other assets(37,300)(10,284)(31,467)
Condominium deposits received, net21,273 59,108 115,090 
Deferred expenses(30,441)(22,903)(23,289)
Accounts payable and accrued expenses8,872 42,825 (1,164)
Cash provided by (used in) operating activities325,254 (283,958)(72,870)
CASH FLOWS FROM INVESTING ACTIVITIES
Property and equipment expenditures(2,004)(1,814)(1,611)
Operating property improvements(54,715)(35,915)(39,863)
Property development and redevelopment(353,098)(274,742)(430,498)
Proceeds from sales of properties, net81,720 322,451 24,373 
Reimbursements under tax increment financings127 667 6,703 
Distributions from unconsolidated ventures207,685 92,060 16,232 
Investments in unconsolidated ventures, net(100,410)(1,249)(3,882)
Cash provided by (used in) investing activities(220,695)101,458 (428,546)

HHC 2022 FORM 10-K | 72

F-7

FINANCIAL STATEMENTS
Table of Contents
Index to Financial Statements

Year Ended December 31,
thousands202220212020
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from mortgages, notes and loans payable1,235,895 2,422,862 1,403,923 
Principal payments on mortgages, notes and loans payable(1,065,348)(2,140,340)(867,935)
Proceeds from issuance of common stock— — 593,574 
Repurchases of common shares(403,863)(81,127)— 
Debt extinguishment costs(60)(29,793)— 
Special Improvement District bond funds released from (held in) escrow23,148 11,477 10,151 
Deferred financing costs and bond issuance costs, net(18,515)(28,517)(17,844)
Taxes paid on stock options exercised and restricted stock vested(3,011)(2,500)(2,229)
Stock options exercised345 4,078 4,638 
Issuance of Teravalis noncontrolling interest31,234 — — 
Distribution to noncontrolling interest upon sale of 110 North Wacker(22,084)— — 
Cash provided by (used in) financing activities(222,259)156,140 1,124,278 
Net change in cash, cash equivalents and restricted cash(117,700)(26,360)622,862 
Cash, cash equivalents and restricted cash at beginning of period1,216,637 1,242,997 620,135 
Cash, cash equivalents and restricted cash at end of period$1,098,937 $1,216,637 $1,242,997 
RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH
Cash and cash equivalents$626,653 $843,212 $1,014,686 
Restricted cash472,284 373,425 228,311 
Cash, cash equivalents and restricted cash at end of period$1,098,937 $1,216,637 $1,242,997 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid, net$214,583 $182,654 $179,355 
Interest capitalized100,607 71,798 70,258 
Income taxes paid (refunded), net24,974 1,789 (2,409)
NON-CASH TRANSACTIONS
Issuance of Teravalis noncontrolling interest33,810 — — 
MPC land contributed to unconsolidated venture21,450 — — 
Accrued property improvements, developments, and redevelopments131 16,885 (92,383)
Special Improvement District bond transfers associated with land sales7,774 8,697 10,122 
Special Improvement District bonds held in third-party escrow— 45,425 — 
Capitalized stock compensation4,785 2,326 1,158 
Initial recognition of ASC 842 operating lease ROU asset1,488 6,189 493 
Initial recognition of ASC 842 operating lease obligation1,621 6,189 493 
Accrued repurchase of common shares— 15,492 — 
Accrued interest on construction loan borrowing— — 9,743 

Table of Contents

 

 

 

 

 

 

 

 

 

(in thousands)

 

Year Ended December 31,

Cash Flows from Financing Activities:

 

2017

 

 

2016

 

 

2015

Proceeds from mortgages, notes and loans payable

 

1,501,290

 

 

535,505

 

 

583,822

Principal payments on mortgages, notes and loans payable

 

(1,350,226)

 

 

(333,302)

 

 

(103,808)

Premium paid to redeem 2021 Senior Notes

 

(39,966)

 

 

 —

 

 

 —

Special Improvement District bond funds released from (held in) escrow

 

35,678

 

 

11,236

 

 

(39,241)

Deferred financing costs and bond issuance costs, net

 

(14,188)

 

 

(5,531)

 

 

(4,285)

Taxes paid on stock options exercised and restricted stock vested

 

(11,672)

 

 

(1,231)

 

 

 —

Issuance of management warrants

 

52,000

 

 

1,000

 

 

 —

Acquisition of 1%  partnership interest in 110 North Wacker

 

 —

 

 

(8,000)

 

 

 —

Stock options exercised

 

22,708

 

 

180

 

 

 —

Issuance of noncontrolling interests

 

3,586

 

 

 —

 

 

 —

Preferred dividend payment on behalf of REIT subsidiary

 

(12)

 

 

 —

 

 

 —

Cash provided by financing activities

 

199,198

 

 

199,857

 

 

436,488

Net change in cash and cash equivalents

 

195,549

 

 

220,209

 

 

(115,150)

Cash and cash equivalents at beginning of period

 

665,510

 

 

445,301

 

 

560,451

Cash and cash equivalents at end of period

$

861,059

 

$

665,510

 

$

445,301

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

 

 

Interest paid

$

129,022

 

$

123,687

 

$

99,296

Interest capitalized

 

73,207

 

 

64,344

 

 

47,221

Income taxes paid (refunded), net

 

(19,381)

 

 

11,191

 

 

3,318

Non-Cash Transactions:

 

 

 

 

 

 

 

 

Special Improvement District bond transfers associated with land sales

 

13,898

 

 

7,662

 

 

18,775

Property developments and redevelopments

 

 —

 

 

 —

 

 

2,530

Accrued interest on construction loan borrowing

 

1,559

 

 

4,386

 

 

2,863

MPC land contributed to Real Estate and Other Affiliates

 

 —

 

 

 —

 

 

15,234

Exercise of Sponsor and Management warrants

 

375,581

 

 

 —

 

 

 —

Special Improvement District bond transfers to Real Estate and Other Affiliates

 

 —

 

 

 —

 

 

(1,518)

Capitalized stock compensation

 

1,121

 

 

2,559

 

 

2,526

Net assets acquired in the acquisition of Las Vegas 51s

 

31,804

 

 

 —

 

 

 —

Net assets acquired in the acquisition of Constellation

 

41,744

 

 

 —

 

 

 —

Net assets acquired in the acquisition of Six Pines

 

 —

 

 

30,191

 

 

 —

Merriweather Post Pavilion donation

 

 

 

 

 

 

 

 

Developments

 

 —

 

 

18,066

 

 

 —

Prepaid and other assets

 

 —

 

 

(10,597)

 

 

 —

Mortgage, notes and loans payable

 

 —

 

 

(2,834)

 

 

 —

Other liabilities

 

 —

 

 

(4,635)

 

 

 —

See Notes to Consolidated Financial Statements.


F-8

HHC 2022 FORM 10-K | 73

Table of Contents

THE HOWARD HUGHES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

FINANCIAL STATEMENTS
FOOTNOTES
Table of Contents
Index to Financial Statements

1. Summary of Significant Accounting Policies

General

The Howard Hughes Corporation (“HHC”is a Delaware corporation that was formed on July 1, 2010. Together with its subsidiaries (herein, HHC or the “Company”) specializes in the development ofCompany), HHC develops Master Planned Communities (“MPCs”), the development of(MPC) and residential condominiums, and the ownership,transforms a multi-block district largely under private management and development or repositioning of real estate assets currently generating revenues, also called operating assets, as well asin New York City into a lifestyle destination (Seaport), invests in other strategic real estate opportunities in the form of entitled and unentitled land and other development rights also called strategic developments. We are(Strategic Developments) and owns, manages and operates real estate assets currently generating revenues (Operating Assets), which may be redeveloped or repositioned from time to time.


COVID-19 Pandemic The outbreak of COVID-19 resulted in a Delaware corporationnegative impact on the Company’s financial performance in 2020, particularly in the Operating Assets and Seaport segments. However, the Company experienced significant performance improvement during the second half of 2020 that was formed on July 1, 2010. Unlesscontinued through 2021, with full-year 2021 segment results equaling or exceeding pre-pandemic levels for the context otherwise requires, references to “we,” “us” and “our” refer to HHC and its subsidiaries.

Management has evaluated all material events occurring subsequent to the datemajority of the Consolidated Financial Statements upCompany’s segments. The Company did not experience material adverse effects related to the date and time this Annual Report is filed and concluded there were no events or transactions occurring during this period that required recognition or disclosureCOVID-19 in the financial statements other than as mentioned herein.  

2022.


Principles of Consolidation and Basis of Presentation

The accompanying Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), with all intercompany balances eliminated.(GAAP). The presentation includesconsolidated financial statements include the accounts of the Company and those entities in which we havethe Company has a controlling financial interest. All intercompany transactions and balances are eliminated in consolidation. The Company also consolidates certain variable interest entities (“VIEs”)(VIEs) in accordance with Financial Accounting Standards Board’s (“FASB”)(FASB) Accounting Standards Codification (“ASC”)(ASC) 810 Consolidation(“ASC 810”) (ASC 810). The outside equity interests in certain entities controlled by the Company are reflected in the consolidated financial statementsConsolidated Financial Statements as a noncontrolling interest. interests.


Certain amounts in 2016the 2021 and 2020 Consolidated Income Statements have been reclassified to conform to the 2017current presentation. Specifically, wethe Company reclassified Demolition costs and Development-related marketing costs to Other within Total expenses.

Variable Interest Entities The Company has interests in various legal entities that represent a variable interest entity. A VIE is an entity: (a) that has total equity at risk that is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other entities; (b) where the group of equity holders does not have reclassified straight-line rent receivablesthe power to direct the activities of $39.1 millionthe entity that most significantly impact the entity’s economic performance, or the obligation to absorb the entity’s expected losses or the right to receive the entity’s expected residual return, or both (i.e., lack the characteristics of a controlling financial interest); or (c) where the voting rights of the equity holders are not proportional to their obligations to absorb the expected losses of the entity, their rights to receive the expected residual returns of the entity, or both, and $31.5 millionsubstantially all of the entity’s activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights.

The Company determines if a legal entity is a VIE by performing a qualitative analysis that requires certain subjective decisions, taking into consideration the design of the entity, the variability that the entity was designed to create and pass along to its interest holders, the rights of the parties and the purpose of the arrangement. Upon the occurrence of certain reconsideration events, the Company reassesses its initial determination as to whether the entity is a VIE.

The Company also performs a qualitative assessment of each VIE to determine if it is the primary beneficiary. The Company is the primary beneficiary and would consolidate the VIE if it has a controlling financial interest where it has both (a) the power to direct the economically significant activities of the entity and (b) the obligation to absorb losses of, or the right to receive benefits from, Accounts receivablethe entity that could potentially be significant to Prepaid expensesthe VIE. This assessment requires certain subjective decisions, taking into consideration the contractual agreements that define the ownership structure, the design of the entity, distribution of profits and otherlosses, risks, responsibilities, indebtedness, voting rights and board representation of the respective parties. Management’s assessment of whether the Company is the primary beneficiary of a VIE is continuously performed.

Upon initial consolidation of a VIE, the Company records the assets, liabilities and noncontrolling interests at fair value and recognizes a gain or loss for the difference between (i) the fair value of the consideration paid, the fair value of noncontrolling interests and the reported amount of any previously held interests and (ii) the net amount of the fair value of the assets and liabilities.

If the Company determines it is no longer the primary beneficiary of a VIE, it will deconsolidate the entity and measure the initial cost basis for any retained interests that are recorded upon the deconsolidation at fair value. The Company will recognize a gain or loss for the difference between the fair value and the previous carrying amount of HHC’s investment in the VIE.
HHC 2022 FORM 10-K | 74
FINANCIAL STATEMENTS
FOOTNOTES
Table of Contents
Index to Financial Statements

Investments in Unconsolidated Ventures The Company’s investments in unconsolidated ventures are accounted for under the equity method to the extent that, based on contractual rights associated with the investments, the Company can exert significant influence over a venture’s operations. Under the equity method, the Company’s investment in the venture is recorded at cost and is subsequently adjusted to recognize the Company’s allocable share of the earnings or losses of the venture. Dividends and distributions received by the Company are recognized as a reduction in the carrying amount of December 31, 2017the investment. Generally, joint venture operating agreements provide that assets, liabilities, funding obligations, profits and 2016, respectively. 

losses, and cash flows are shared in accordance with ownership percentages. For certain equity method investments, various provisions in the joint venture operating agreements regarding distributions of cash flow based on capital account balances, allocations of profits and losses and preferred returns may result in the Company’s economic interest differing from its stated ownership or if applicable, the Company’s final profit-sharing interest after receipt of any preferred returns based on the venture’s distribution priorities. For these investments, the Company recognizes income or loss based on the joint venture’s distribution priorities, which could fluctuate over time and may be different from its stated ownership or final profit-sharing percentage.


The Company periodically assesses the appropriateness of the carrying amount of its equity method investments, as events or changes in circumstance may indicate that a decrease in value has occurred which is other‑than‑temporary. In addition to the property‑specific impairment analysis performed on the underlying assets of the investment, the Company also considers the ownership, distribution preferences, limitations and rights to sell and repurchase its ownership interests. If a decrease in value of an investment is deemed to be other‑than‑temporary, the investment is reduced to its estimated fair value and an impairment-related loss is recognized in the Consolidated Statements of Operations as a component of Equity in earnings (losses) from investments in unconsolidated ventures.

For investments in ventures where the Company has virtually no influence over operations and the investments do not have a readily determinable fair value, the Company has elected the measurement alternative to carry the securities at cost less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the issuer. Equity securities not accounted for under the equity method, or where the measurement alternative has not been elected, are required to be reported at fair value with unrealized gains and losses reported in the Consolidated Statements of Comprehensive Income (Loss) as Net unrealized gains (losses) on instruments measured at fair value through earnings.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The estimates and assumptions include, but are not limited to, revenue recognition accounted for under the percentage of completion method, capitalization of development costs, provision for income taxes, future cash flows used in impairment analysis and fair value used in impairment calculations, recoverable amounts of receivables and deferred tax assets, initial valuations of tangible and intangible assets acquired and the related useful lives of assets upon which depreciation and amortization is based. Estimates and assumptions have also been made with respect to future revenues and costs, and the fair value of warrants, debt and options granted. In particular, MPC cost of sales estimates are highly judgmental as they are sensitive to cost escalation, sales price escalation and lot absorption, which are subject to judgment and affected by expectations about future market or economic conditions. Actual results could differ from these and other estimates.


Segments

Segment information is prepared on the same basis that management reviews information for operational decision-making purposes. Management evaluates the performance of each of ourHHC’s real estate assets or investments individually and aggregates such properties into segments based on their economic characteristics and types of revenue streams. We operateThe Company operates in threefour business segments: (i) MPCs; (ii) Operating Assets; (ii) MPC; (iii) Seaport and (iii)(iv) Strategic Developments.


Net Investment in Real Estate


Master Planned Community Assets, Land, Buildings and Equipment

and Land Real estate assets are stated at cost less any provisions for impairments.impairments and depreciation as applicable. Expenditures for significant improvements to ourthe Company’s assets are capitalized. Tenant improvements relating to ourthe Company’s operating assets are capitalized and depreciated over the shorter of their economic lives or the lease term. Maintenance and repair costs are charged to expense when incurred.

F-9

HHC 2022 FORM 10-K | 75

FINANCIAL STATEMENTS
FOOTNOTES
Table of Contents
Index to Financial Statements

Table of Contents

THE HOWARD HUGHES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

WeDepreciation The Company periodically reviewreviews the estimated useful lives of properties. Depreciation or amortization expense is computed using the straight‑line method based upon the following estimated useful lives:

Asset Type

Years

Years

Balance Sheet Location of Asset

Buildings and improvements

7 - 40

10 - 45

Buildings and Equipment

Equipment and fixtures

5 - 10

20

Buildings and Equipment

Computer hardware and software, and vehicles

3 - 5

Buildings and Equipment

Tenant improvementsRelated lease termBuildings and Equipment
Leasing costsRelated lease termPrepaid expenses and other assets, net

Tenant improvements

Lesser of lease term or useful life

Prepaid expenses and other assets, net

Leasing costs

Related lease term

Prepaid expenses and other assets, net

From


From time to time, wethe Company may reassess the development strategies for certain buildings and improvements which results in changes to ourthe Company’s estimate of their remaining useful lives. As a result, we recognized anThe Company did not recognize additional $25.5 million, or $0.59 per diluted share, $1.0 million, or $0.02 per diluted share, and $17.1 million, or $0.40 per diluted share, in depreciation expense duringof significance for the years ended December 31, 2017, 20162022, 2021 and 2015, respectively, due to the change in useful lives of these buildings and improvements.

2020.


Developments

Development costs, which primarily include direct costs related to placing the asset in service associated with specific development properties, are capitalized as part of the property being developed.

Construction and improvement costs incurred in connection with the development of new properties or the redevelopment of existing properties are capitalized before they are placed into service. Costs include planning, engineering, design, direct material, labor and subcontract costs. Real estate taxes, utilities, direct legal and professional fees related to the sale of a specific unit, interest, insurance costs and certain employee costs incurred during construction periods are also capitalized. Capitalization commences when the development activities begin and ceasescease when a project is completed, put on hold or we decideat the date that the Company decides not to not move forward with a project. Capitalized costs related to a project where we haveHHC has determined not to move forward are expensed.expensed if they are not deemed recoverable. Capitalized interest costs are based on qualified expenditures and interest rates in place during the construction period. Demolition costs associated with these redevelopments are expensed as incurred.incurred unless the demolition was included in the Company’s development plans and imminent as of the acquisition date of an asset. Once the assets are placed into service, they are depreciated in accordance with ourHHC’s policy. In the event that management no longer has the ability or intent to complete a development, the costs previously capitalized are evaluated for impairment.

Our


Developments consist of the following categories:

 

 

 

 

 

 

 

 

 

December 31, 

(In thousands)

    

2017

    

2016

Land and improvements

 

$

202,875

 

$

188,544

Development costs

 

 

675,691

 

 

567,650

Condominium projects

 

 

318,016

 

 

205,786

Total Developments

 

$

1,196,582

 

$

961,980

Investment in Real Estate and Other Affiliates

In the ordinary course of business, we enter into partnerships or joint ventures primarily for the development and operation of real estate assets which are referred to as “Real Estate and Other Affiliates.”

We assess our joint ventures at inception to determine if any meet the qualifications of a variable interest entity (“VIE”). We consider a partnership or joint venture a  VIE if: (a) the total equity investment is not sufficient to permit the entity to finance its activities without additional subordinated financial support; (b) characteristics of a controlling financial interest are missing (either the ability to make decisions through voting or other rights, the obligation to absorb the expected losses of the entity or the right to receive the expected residual returns of the entity); or (c) the voting rights of the equity holders are not proportional to their obligations to absorb the expected losses of the entity and/or their rights to receive the expected residual returns of the entity, and substantially all of the entity’s activities either involve or are conducted on behalf of an investor that has disproportionately few

F-10

Table of Contents

THE HOWARD HUGHES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

voting rights. Upon the occurrence of certain events outlined in ASC 810, we reassess our initial determination of whether the partnership or joint venture is a VIE.

We also perform a qualitative assessment of each VIE to determine if we are the primary beneficiary. Under ASC 810, a company concludes that it is the primary beneficiary and consolidates the VIE if the company has both (a) the power to direct the economically significant activities of the entity and (b) the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to the VIE. The company considers the contractual agreements that define the ownership structure, distribution of profits and losses, risks, responsibilities, indebtedness, voting rights and board representation of the respective parties in determining if the company is the primary beneficiary. As required by ASC 810, management’s assessment of whether the company is the primary beneficiary of a VIE is continuously performed.

We account for VIEs for which we are not considered to be the primary beneficiary, but have significant influence, using the equity method and investments in VIEs where we do not have significant influence on the joint venture’s operating and financial policies using the cost method.

We account for investments in joint ventures where we own a non‑controlling interest using the equity method, and investments in joint ventures where we have virtually no influence on the joint venture’s operating and financial policies using the cost method. For cost method investments, we recognize earnings to the extent of distributions received from such investments.

Under the equity method, the cost of our investment is adjusted for our share of the equity in earnings or losses of such Real Estate Affiliates from the date of investment and reduced by distributions received. Generally, the operating agreements with respect to our Real Estate and Other Affiliates provide that assets, liabilities and funding obligations are shared in accordance with our ownership percentages. We generally also share in the profit and losses, cash flows and other matters relating to our Real Estate Affiliates in accordance with our respective ownership percentages. For certain equity method investments, when the preferences on profit sharing on liquidation rights and priorities differ from the ownership percentages, we consider ASC 970 and apply the Hypothetical Liquidation Book Value (“HLBV”) method. Under this method, we recognize income or loss based on the change in our underlying share of the venture’s net assets on a hypothetical liquidation basiscategories as of the reporting date. 

December 31:

thousands20222021
Land and improvements$339,540 $360,957 
Development costs785,487 847,950 
Total Developments$1,125,027 $1,208,907 

Acquisitions of Properties

We accountThe Company accounts for the acquisition of real estate properties in accordance with ASC 805 Business Combinations (“ASC 805”)(ASC 805). This methodology requires that assets acquired and liabilities assumed be recorded at their fair values on the date of acquisition.

acquisition for business combinations and at relative fair values for asset acquisitions. Acquisition costs related to the acquisition of a business are expensed as incurred. Costs directly related to asset acquisitions are considered additions to the purchase price and increase the cost basis recorded for the Investment in Real Estate. Acquisition costs related to the acquisition of a business are expensed as incurred.

such assets.


The fair value of tangible assets of an acquired property (which includes land, buildings and improvements) is determined by valuing the property as if it were vacant, and the “as-if-vacant”as-if-vacant value is then allocated to land, buildings and improvements based on management’s determination of the fair value of these assets. The “as-if-vacant”as-if-vacant values are derived from several sources which incorporate significant unobservable inputs that are classified as Level 3 inputs in the fair value hierarchy and primarily include a discounted cash flow analysis using discount and capitalization rates based on recent comparable market transactions, where available.


The fair value of acquired intangible assets consisting of in-place, above-market and below-market leases is recorded based on a variety of considerations, some of which incorporate significant unobservable inputs that are classified as Level 3 inputs in the fair value hierarchy. In-place lease considerations include, but are not necessarily limited to: (1) the value associated with avoiding the cost of originating the acquired in-place leases (i.e., the market cost to execute a lease, including leasing commissions and tenant improvements); (2) the value associated with lost revenue related to tenant reimbursable operating costs incurred during the assumed lease-up period (i.e., real estate taxes, insurance and certain other operating expenses); and (3) the value associated with lost rental revenue from existing leases during the assumed lease-up period. Above-market and below-market leases are valued at the present value, using a discount rate that reflects the risks associated with the leases acquired, of the difference between (1) the contractual amounts to be paid pursuant to the in-place lease; and (2) management’s estimate of current market lease rates, measured over the remaining non-cancelable lease term, including any below-market renewal option periods.

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THE HOWARD HUGHES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Impairment

We review ourHHC reviews its long-lived assets (including those held by our Real Estate and Other Affiliates)its unconsolidated ventures) for potential impairment indicators whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized if the carrying amount of an asset is not recoverable and exceeds its fair value. The evaluation of anticipated cash flows is highly subjective and is based in part on assumptions regarding future economic conditions, such as occupancy, rental rates, capital requirements and sales values that could differ materially from actual results in future periods. If impairment indicators exist and it is expected that undiscounted cash flows generated by the asset are less than its carrying amount, less costs to sell in the case of assets classified as held for sale, an impairment provision is recorded to write-downwrite down the carrying amount of the asset to its fair value.


Impairment indicators for ourHHC’s assets or projects within our MPC segmentMPCs are assessed separately and include, but are not limited to, significant decreases in sales pace or average selling prices, significant increases in expected land development and construction costs or cancellation rates, and projected losses on expected future sales. MPC assets have extended life cycles that may last 20 to 40 years, or longer, and have few long‑term contractual cash flows. Further, MPC assets generally have minimal to no residual values because of their liquidating characteristics. MPC development periods often occur through several economic cycles. Subjective factors such as the expected timing of property development and sales, optimal development density and sales strategy impact the timing and amount of expected future cash flows and fair value.


Impairment indicators for our Operating Assets segment are assessed separately for each property and include, but are not limited to, significant decreases in net operating income, significant decreases in occupancy, ongoing low occupancy and significant net operating losses.


Impairment indicators for Seaport include, but are not limited to, significant changes in projected completion dates, operating revenues or cash flows, development costs, ongoing low occupancy, and market factors.

Impairment indicators for assets in ourthe Strategic Developments segment are assessed by project and include, but are not limited to, significant changes in projected completion dates, revenues or cash flows, development costs, market factors, significant decreases in comparable property sale prices and feasibility.


The cash flow estimates used both for determining recoverability and estimating fair value are inherently judgmental and reflect current and projected trends in rental, occupancy, pricing, development costs, sales pace and capitalization rates, and estimated holding periods for the applicable assets. Although the estimated fair value of certain assets may be exceeded by the carrying amount, a real estate asset is only considered to be impaired when its carrying amount is not expected to be recovered through estimated future undiscounted cash flows. To the extent an impairment provision is necessary, the excess of the carrying amount of the asset over its estimated fair value is expensed to operations. In addition, the impairment provision is allocated proportionately to adjust the carrying amount of the asset. The adjusted carrying amount, which represents the new cost basis of the asset, is depreciated over the remaining useful life of the asset or, for MPCs, is expensed as a cost of sales when land is sold. Assets that have been impaired will in the future have lower depreciation and cost of sale expenses. The impairment will have no impact on cash flow.

With respect to our Investment in Real Estate and Other Affiliates, a series of operating losses of an underlying asset or other factors may indicate that a decrease in value has occurred which is other‑than‑temporary. The investment in each Real Estate and Other Affiliate is evaluated periodically and as deemed necessary for recoverability and valuation declines that are other‑than‑temporary. If the decrease in value of an Investment in a Real Estate and Other Affiliate is deemed to be other‑than‑temporary, our investment is reduced to its estimated fair value. In addition to the property‑specific impairment analysis that we perform on the underlying assets of the investment, we also consider the ownership, distribution preferences, limitations, and rights to sell and repurchase our ownership interests.

For the years ended December 31, 2017, 2016 and 2015, we evaluated whether impairment indicators existed at any of our assets. In most instances, we concluded no impairment indicators were present. For the year ended December 31, 2016, we recognized an impairment charge for Park West during the third quarter of 2016 due to a change in strategy and reduction of the anticipated holding period. For the years ended December 31, 2017 and 2015, we concluded that there were no impairments. Please refer to Note 6 – Impairment in our Consolidated Financial Statements for additional information.


Cash and Cash Equivalents

Cash and Cash Equivalentscash equivalents consist of highly-liquid investments with maturities at date of purchase of three months or less and

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THE HOWARD HUGHES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

include registered money market mutual funds which are invested in United States Treasury bills that are valued at the net asset value of the underlying shares in the funds as of the close of business at the end of each period as well as deposits with major banks throughout the United States. Such deposits are in excess of FDIC limits and are placed with high qualityhigh-quality institutions in order to minimize concentration of counterparty credit risk.


Restricted CashRestricted cash reflects amounts segregated in escrow accounts in the name of the Company, primarily related to escrowed condominium deposits by buyers and other amounts related to taxes, insurance and legally restricted security deposits and leasing costs.

Accounts Receivable, net

Accounts receivable includes tenant rents, tenant recoveries, straight-line rent assets and other receivables.

We record allowances against our receivables that we consider uncollectible. These allowances are reviewed periodically On a quarterly basis, management reviews tenant rents, tenant recoveries and are adjusted based on management’s estimatestraight-line rent assets for collectability. As required under Accounting Standards Codification (ASC) 842 - Leases, this analysis includes a review of receivables that will not be realized in subsequent periods. Management exercises judgment in establishing these allowancespast due accounts and considers factors such as the credit quality of tenants, current economic conditions and changes in customer payment history, current credit statustrends. When full collection of a lease receivable or future lease payment is not probable, a reserve for the receivable balance is charged against rental revenue and future rental revenue is recognized on a cash basis. The Company also records reserves for estimated losses under ASC 450 - Contingencies if the tenant is currently occupyingestimated losses are probable and can be reasonably estimated.


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The following table represents the spacecomponents of Accounts Receivable, net of amounts considered uncollectible, in developing these estimates.

the accompanying Consolidated Balance Sheets as of December 31:

thousands20222021
Straight-line rent receivables$84,145 $72,461 
Tenant receivables12,044 8,647 
Other receivables7,248 5,280 
Accounts receivable, net (a)$103,437 $86,388 
(a)As of December 31, 2022, the total reserve balance for amounts considered uncollectible was $8.9 million, comprised of $3.4 million related to ASC 842 and $5.5 million related to ASC 450. As of December 31, 2021, the total reserve balance was $16.5 million, comprised of $11.5 million related to ASC 842 and $5.0 million related to ASC 450.

The following table summarizes the changes in allowance for doubtful accounts against our accounts receivables:

 

 

 

 

 

 

 

 

 

 

(In thousands)

    

2017

    

2016

    

2015

Balance as of January 1

 

$

7,799

 

$

4,406

 

$

7,619

Provision for doubtful accounts

 

 

2,710

 

 

5,664

 

 

4,030

Write-offs

 

 

(1,209)

 

 

(2,271)

 

 

(7,243)

Balance as of December 31, 

 

$

9,300

 

$

7,799

 

$

4,406

The decreaseimpacts of the ASC 842 and ASC 450 reserves in the provisionaccompanying Consolidated Statements of Operations for the yearyears ended December 31, 2017 compared to 2016 is primarily due to the reserve for a termination fee for a tenant in 2016 and a delinquent paying tenant in 2016 at another property. The increase in the provision for the year ended December 31, 2016 compared to 2015 is consistent with the growth of the Operating Assets portfolio and increase in the number of tenants. The significant decrease in write-offs in the allowance for doubtful accounts in the year ended December 31, 2016 as compared to 2015 relates primarily to the recovery of uncollectible receivables from a tenant at an operating property that vacated its space.

Notes Receivable, net

Notes receivable, net includes non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, they are recorded at amortized cost less any provision for impairment. We will evaluate our notes receivable for impairment when it is probable the payment of interest and principal will not be made in accordance with the contractual terms of the note agreement. In the fourth quarter of 2017, we made an investment in a $5.3 million note collateralized by a building in Columbia. The note is carried at cost.

31:

thousandsIncome Statement Location202220212020
ASC 842 reserveRental revenue$(3,715)$(1,562)$21,825 
ASC 450 reserveProvision for (recovery of) doubtful accounts1,959 (459)6,009 
Total (income) expense impact$(1,756)$(2,021)$27,834 

Municipal Utility District Receivables, net

In Houston, Texas, certain development costs are reimbursable through the creation of a Municipal Utility Districts (“MUDs”)District (MUD), also known as Water Control and Improvement Districts),Districts, which are separate political subdivisions authorized by Article 16, Section 59 of the Texas Constitution and governed by the Texas Commission on Environmental Quality (“TCEQ”)(TCEQ). MUDs are formed to provide municipal water, waste water,wastewater, drainage services, recreational facilities and roads to those areas where they are currently unavailable through the regular city services. Typically, the developer advances funds for the creation of the facilities, which must be designed, bid and constructed in accordance with the City of Houston’s and TCEQ requirements.


The developer initiates the MUD process by filing the applications for the formation of the MUD, and once the applications have been approved, a Board of Directors is elected for the MUD and given the authority to issue ad valorem tax bonds and the authority to tax residents. The MUD Board authorizes and approves all MUD development contracts, and pay requests. MUD bond sale proceeds are used to reimburse the developer for its construction costs, including interest. MUD taxes are used to payAt the debt service ondate the bonds andexpenditures occur, the operating expenses of the MUD. The Company estimatesdetermines the costs it believes will be eligible for reimbursement and recognizes that as MUD receivables. OurThese expenditures are subject to review by the MUD engineers for eligibility in accordance with the development contracts as part of the process for reimbursement. MUD receivables are pledged as security to creditors under the debt facilities relating to our Bridgeland and The Woodlands MPCs. MUD receivablesBridgeland.

Notes Receivable, netNotes receivable, net includes non-derivative financial assets with fixed or determinable payments that are shown net ofnot quoted in an allowance of $0.8 million and $0.9 millionactive market. Subsequent to initial recognition, they are recorded at amortized cost less any provision for impairment as of December 31, 2017 and 2016, respectively, in the accompanying Consolidated Balance Sheets. 

required under ASC 326 - Financial Instruments - Credit Losses.

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THE HOWARD HUGHES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Prepaid Expenses and Other Assets, net

The major components of Prepaid expenses and other assets, net include condominium receivables and condominium deposits (as discussed below in Revenue Recognition and Related Matters), Special Improvement District (“SID”)(SID) receivables, condominium inventory, interest rate derivative assets, various intangibles, and Straight-line rent receivables.

prepaid expenses related to the Company’s properties.


SID receivables are amounts due from SID bonds related to our MPCs.the Company’s Summerlin MPC. Proceeds from SID bonds are held in escrow by a third-party and are used to reimburse usthe Company for a portion of the development costs incurred in our Summerlin MPC.Summerlin.

Condominium inventory includes available for sale units at HHC’s completed condominium towers and is stated at the lower of cost or fair value less selling costs. Condominium inventory includes land acquisition and development costs, construction costs, and interest and real estate taxes, which are capitalized during the development period. HHC evaluates condominium inventory for impairment when potential indicators exist. An impairment loss is recognized if the carrying amount of condominium inventory exceeds the fair value less selling costs, which is based on comparable sales in the normal course of business under existing and anticipated market conditions.

Tax increment financing (TIF) receivables are amounts which the Company has submitted for reimbursement from Howard County, Maryland, in conjunction with development costs expended on key roads and infrastructure work within the Merriweather District of Columbia specified per the terms of the county’s TIF legislation and Special Obligation Bonds issued in October 2017.

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The Company’s intangibles include in-place lease assets and above-market lease assets where HHC is the lessor, trademark and tradename intangibles related to MPCs, and other intangibles relating to the Company’s Las Vegas Aviators Triple-A professional baseball team. The Company amortizes finite-lived intangible assets less any residual value, if applicable, on a straight-line basis over the term of the related lease or the estimated useful life of the asset.

Financial Instruments - Credit Losses The Company is exposed to credit losses through the sale of goods and services to the Company’s customers. Receivables held by the Company primarily relate to short-term trade receivables and financing receivables, which include MUD receivables, SID bonds, TIF receivables, net investments in lease receivables, and notes receivable. The Company assesses its exposure to credit loss based on historical collection experience and future expectations by portfolio segment. Historical collection experience is evaluated on a quarterly basis by the Company.

The amortized cost basis of financing receivables, consisting primarily of MUD and SID receivables, are $26.4 million and $61.6totaled $545.4 million as of December 31, 20172022, and 2016, respectively. 

$484.7 million as of December 31, 2021. The MUD receivable balance includes accrued interest of $36.4 million at December 31, 2022 and $18.2 million at December 31, 2021. The allowance for credit losses for financing receivables was not material as of December 31, 2022 and 2021, and there was no material activity related to the allowance for credit losses for the years ended December 31, 2022, 2021 and 2020.


Financing receivables are considered to be past due once they are 30 days contractually past due under the terms of the agreement. The Company currently does not have significant financing receivables that are past due or on nonaccrual status. There have been no significant write-offs or recoveries of amounts previously written-off during the current period for financing receivables.

Income Taxes

The Company utilizes the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect for years in which the temporary differences are expected to reverse. Deferred income taxes also reflect the impact of operating loss and tax credit carryforwards.


The Company periodically assesses the realizability of its deferred tax assets. If the Company concludes that it is more likely than not that some of the deferred tax assets will not be realized, the tax asset is reduced by a valuation allowance. The Company considers many factors when assessing the likelihood of future realization of deferred tax assets, including expectations of future taxable income, carryforward periods available to the Company for tax reporting purposes, various income tax strategies and other relevant factors. In addition, interest and penalties related to uncertain tax positions, if necessary, are recognized in income tax expense.

In the Company’s MPCs, gains with respect to land sales, whether for commercial use or for single-family residences, are reported for tax purposes either on the modified accrual method or on the percentage-of-completion method. Under the percentage-of-completion method, a gain is recognized for tax purposes as costs are incurred in satisfaction of contractual obligations.

Deferred Expenses, netDeferred expenses consist principally of leasing costs. Deferred leasing costs are amortized to amortization expense using the straight‑line method over the related lease term. Deferred expenses are shown net of accumulated amortization of $53.8 million as of December 31, 2022, and $49.9 million as of December 31, 2021.

Marketing and AdvertisingEach of the Company’s segments incur various marketing and advertising costs as part of their development, branding, leasing or sales initiatives. These costs include special events, broadcasts, direct mail and online digital and social media programs, and they are expensed as incurred.

Fair Value of Financial InstrumentsThe carrying values of cash and cash equivalents, escrows, receivables, accounts payable, accrued expenses and other assets and liabilities are reasonable estimates of their fair values because of the short maturities of these instruments.

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Derivative Instruments and Hedging ActivitiesDerivative instruments and hedging activities require management to make judgments on the nature of its derivatives and their effectiveness as hedges. These judgments determine if the changes in fair value of the derivative instruments are reported as a component of Net Income in the Consolidated Statements of Operations or as a component of Comprehensive Income in the Equity on the Consolidated Balance Sheets. While management believes its judgments are reasonable, a change in a derivative’s effectiveness as a hedge could materially affect expenses, net income and equity. The Company accounts for the changes in the fair value of an effective hedge in other comprehensive income (loss) and subsequently reclassifies the balance from other comprehensive income (loss) to earnings over the term that the hedged transaction affects earnings. The Company accounts for the changes in the fair value of an ineffective hedge directly in earnings. 

Stock-Based Compensation The Company applies the provisions of ASC 718 Stock Compensation which requires all share‑based payments to be recognized in the Consolidated Statements of Operations based on their fair values. The Company grants various types of stock-based awards including stock options, restricted stock awards and performance-based awards. The fair value of stock option awards is determined using the Black-Scholes option-pricing model. Restricted stock awards are valued using the market price of the Company’s common stock on the grant date. For performance-based awards, the fair value of the market-condition portion of the award is measured using a Monte Carlo simulation, and the performance-condition portion is measured at the market price of the Company’s common stock on the grant date. The Company records compensation cost for stock-based compensation awards over the requisite service period. If the requisite service period is satisfied, compensation cost is not adjusted unless the award contains a performance condition. If an award contains a performance condition, expense is recognized only for those shares that ultimately vest using the per-share fair value measured at the grant date. The Company recognizes forfeitures as they occur. See Note 11 - Stock-Based Compensation Plans for additional information.

Revenue Recognition and Related Matters

Condominium Rights and Unit Sales Revenue from the sale of an individual unit in a condominium project is recognized at a point in time (i.e., the closing) when HHC satisfies the single performance obligation to construct a condominium project and transfer control of a completed unit to a buyer. The transaction price, which is the amount of consideration the Company receives upon delivery of the completed condominium unit to the buyer, is allocated to this single obligation and is received at closing less any amounts previously paid on deposit.

The Company receives cash payments in the form of escrowed condominium deposits from customers who have contracted to purchase a condominium unit based on billing schedules established in HHC’s condominium purchase agreement contracts. The amounts are recorded in Restricted cash until released from escrow in accordance with the escrow agreement and on approval of HHC’s lender to fund construction costs of a project. A corresponding condominium contract deposit liability is established at the date of receipt, representing a portion of HHC’s unsatisfied performance obligation at each reporting date.

These deposits, along with the balance of the contract value, are recognized at closing upon satisfaction of HHC’s performance obligation and transfer of title to the buyer. Real estate project costs directly associated with a condominium project, which are HHC’s costs to fulfill contracts with condominium buyers, are capitalized while all other costs are expensed as incurred. Total estimated project costs include direct costs such as the carrying value of the land, site planning, architectural, construction and financing costs, as well as indirect cost allocations. The allocations include costs which clearly relate to the specific project, including certain infrastructure and amenity costs which benefit the project as well as others, and are based upon the relative sales value of the units. Furthermore, incremental costs incurred to obtain a contract to sell condominium units are evaluated for capitalization in accordance with ASC 340-40, with incremental costs to fulfill a contract only being capitalized if the costs relate directly to a specifically identified contract, enhance resources to satisfy performance obligations in the future and are expected to be recovered.

Master Planned Community Land Sales Revenues from land sales are recognized at a point in time when the land sale closing process is complete. The transaction price generally has both fixed and variable components, with the fixed price stipulated in the contract and representative of a single performance obligation. See Builder Price Participation (BPP) below for a discussion of the variable component. The fixed transaction price, which is the amount of consideration received in full upon transfer of the land title to the buyer, is allocated to this single obligation and is received at closing of the land sale less any amounts previously paid on deposit.

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The Company receives cash payments in the form of land purchase deposits from homebuilders or other commercial buyers who have contracted to purchase land within the Company’s MPCs, and HHC holds any escrowed deposits in Restricted cash or Cash and cash equivalents based on the terms of the contract. In situations where the Company has completed the closing of a developed land parcel or superpad and consideration is paid in full, but a portion of HHC’s performance obligation relating to the enhancement of the land is still unsatisfied, revenue related to HHC’s obligation is recognized over time. The Company recognizes only the portion of the improved land sale where the improvements are fully satisfied based on a cost input method. The aggregate amount of the transaction price allocated to the unsatisfied obligation is recorded as deferred land sales and is presented in Accounts payable and accrued expenses. The Company measures HHC’s unsatisfied obligation based on the costs remaining relative to the total cost at the date of closing.

When residential or commercial land is sold, the cost of sales includes actual costs incurred and estimates of future development costs benefiting the property sold. In accordance with ASC 970-360-30-1, when land is sold, costs are allocated to each sold superpad or lot based upon the relative sales value. For purposes of allocating development costs, estimates of future revenues and development costs are re-evaluated throughout the year, with adjustments being allocated prospectively to the remaining parcels available for sale. For certain parcels of land, including acquired parcels that the Company does not intend to develop or for which development was complete at the date of acquisition, the specific identification method is used to determine the cost of sales.

Builder Price Participation BPP is the variable component of the transaction price for certain Master Planned Communities Land Sales. BPP is earned when a developer that acquired land from HHC develops and sells a home to an end user at a price higher than a predetermined breakpoint. The excess over the breakpoint is shared between HHC and the developer at the time of closing on the sale of the home based on a previously agreed-upon percentage. Generally, BPP is constrained, and accordingly, the Company does not recognize an estimate of variable consideration. The Company’s conclusion is based on the following factors:
–BPP is highly susceptible to factors outside HHC’s influence such as unemployment and interest rates
–the time between the sale of land to a homebuilder and closing on a completed home can take up to three years
–there is significant variability in home pricing from period to period

The Company evaluates contracts with homebuilders with respect to BPP at each reporting period to determine whether a change in facts and circumstances has eliminated the constraint and will record an estimate of BPP revenue, if applicable.

For Condominium Rights and Unit Sales, Master Planned Community Land Sales and Builder Price Participation the Company elected the practical expedient to not adjust promised amount of consideration for the effects of a significant financing component when the expected period between transfer of the promised asset and payment is one year or less.

Rental Revenues Revenue associated with the Company’s operating assets includes minimum rent, percentage rent in lieu of fixed minimum rent, tenant recoveries and overage rent.

Minimum rent revenues are recognized on a straight‑line basis over the terms of the related leases when collectability is reasonably assured and the tenant has taken possession of, or controls, the physical use of the leased asset. Percentage rent in lieu of fixed minimum rent is recognized as sales are reported from tenants. Minimum rent revenues reported on the Consolidated Statements of Operations also include amortization related to above and below‑market tenant leases on acquired properties.

Recoveries from tenants are stipulated in the leases, are generally computed based upon a formula related to real estate taxes, insurance and other real estate operating expenses, and are generally recognized as revenues in the period the related costs are incurred.

Overage rent is recognized on an accrual basis once tenant sales exceed contractual thresholds contained in the lease and is calculated by multiplying the tenant sales in excess of the minimum amount by a percentage defined in the lease.

If the lease provides for tenant improvements, the Company determines whether the tenant improvements are owned by the tenant or by HHC. When HHC is the owner of the tenant improvements, rental revenue begins when the improvements are substantially complete. When the tenant is the owner of the tenant improvements, any tenant allowance funded by the Company is treated as a lease incentive and amortized as an adjustment to rental revenue over the lease term.

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Other Land, Rental and Property Revenues - Over Time and Point in Time Other land revenues recognized over time include ground maintenance revenue, homeowner association management fee revenue and revenue from providing exclusive cable and internet services at the Company’s MPCs for the benefit of the tenants and owners of the communities. These revenues are recognized over time, as time elapses. The amount of consideration and the duration are fixed, as stipulated in the related agreements, and represent a single performance obligation.

Other land revenues also include transfer fees on the secondary sales of homes in MPCs, forfeitures of earnest money deposits by buyers of HHC’s condominium units and other miscellaneous items. These items are recognized at a point in time when the real estate closing process is complete or HHC has a legal right to the respective fee or deposit.

Other rental and property revenues related to contracts with customers is generally comprised of baseball-related ticket sales, retail operations, food sales, advertising and sponsorships. Season ticket sales are recognized over time as games take place. Single tickets and total net sales from retail operations are recognized at a point in time, at the time of sale when payment is received and the customer takes possession of the merchandise. In all cases, the transaction prices are fixed, stipulated in the ticket, contract or product, and representative in each case of a single performance obligation. Events-related service revenue is recorded at the time the customer receives the benefit of the service.

Baseball-related and other sponsorships generally cover a season or contractual period of time, and the related revenue is generally recognized on a straight-line basis over time, as time elapses, unless a specific performance obligation exists within the sponsorship contract where point-in-time delivery occurs and recognition at a specific performance or delivery date is more appropriate. Advertising and sponsorship agreements that allow third parties to display their advertising and products at HHC’s venues for a certain amount of time relate to a single performance obligation, consideration terms for these services are fixed in each respective agreement, and HHC generally recognizes the related revenue on a straight-line basis over time, as time elapses.

Noncontrolling Interests As of December 31, 2022, Noncontrolling interests is primarily related to noncontrolling interest in Teravalis and the Ward Village Homeowners’ Associations (HOAs). See Note 3 - Acquisitions and Dispositions for additional information on Teravalis. As of December 31, 2021, Noncontrolling interest is primarily related to the HOAs. All revenues and expenses related to the HOAs are attributable to noncontrolling interests and do not impact net income attributable to common stockholders.

Redeemable Noncontrolling Interest As of December 31, 2021, Redeemable noncontrolling interest related to a local developer’s interest in 110 North Wacker. This noncontrolling interest holder had the put right to require the Company to purchase its interest if 110 North Wacker had not been sold or refinanced by a certain date. Upon sale of 110 North Wacker in 2022, the local developer’s put right lapsed and the local developer’s share of the sales proceeds were distributed resulting in no remaining Redeemable noncontrolling interest as of December 31, 2022. See Note 2 - Investments in Unconsolidated Ventures for additional information.

Recently Issued Accounting Standards The following is a summary of recently issued and other notable accounting pronouncements which relate to the Company’s business.

ASU 2020-04, Reference Rate Reform The amendments in this Update provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform when certain criteria are met. The amendments in this Update apply only to contracts, hedging relationships and other transactions that reference the London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, for which an entity has applied certain optional expedients, that are retained through the end of the hedging relationship. The amendments in this Update are effective as of March 12, 2020, through December 31, 2022. On December 21, 2022, the FASB issued Accounting Standards Update (ASU) 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which extends the period of time entities can utilize the reference rate reform relief guidance under ASU 2020-04, from December 31, 2022, to December 31, 2024. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. The Company has elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedge transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur through the effective date of December 31, 2024, as extended by ASU 2022-6.

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2. Investments in Unconsolidated Ventures

In the normal course of business, the Company enters into partnerships and ventures with an emphasis on investments associated with the development and operation of real estate assets. As of December 31, 2022, the Company does not consolidate the investments below as it does not have a controlling financial interest in these ventures. As such, the Company primarily reports its interests in accordance with the equity method. As of December 31, 2022, these ventures had mortgage financing totaling $249.9 million, with the Company’s proportionate share of this debt totaling $125.2 million. All of this indebtedness is without recourse to the Company, with the exception of the collateral maintenance obligation for Floreo. See Note 10 - Commitments and Contingencies for additional information related to the Company’s collateral maintenance obligation.

Investments in unconsolidated ventures consist of the following:
 Ownership Interest (a)Carrying ValueShare of Earnings/Dividends
 December 31,December 31,December 31,December 31,Year Ended December 31,
thousands except percentages2022202120222021202220212020
Equity Method Investments
Operating Assets
110 North Wacker— %23.0 %$— $194,999 $4,910 $(74,309)$(13,896)
The Metropolitan Downtown Columbia (b)50.0 %50.0 %— — 4,556 582 765 
Stewart Title of Montgomery County, TX50.0 %50.0 %4,217 4,185 1,294 1,860 1,250 
Woodlands Sarofim #120.0 %20.0 %3,029 3,215 (13)96 125 
m.flats/TEN.M (c)50.0 %50.0 %— — 6,878 974 666 
Master Planned Communities
The Summit (d)50.0 %50.0 %49,368 41,536 (30)59,407 17,845 
Floreo (e)50.0 %50.0 %58,001 59,080 (1,377)(8)— 
Seaport
Mr. C Seaport— %— %— — — — (6,900)
The Lawn Club (d)50.0 %50.0 %2,553 447 — — — 
Ssäm Bar (Momofuku) (d)(e)50.0 %50.0 %5,551 5,852 (783)(1,988)(2,392)
Tin Building by Jean-Georges (d)(e)65.0 %65.0 %6,935 — (36,182)— — 
Jean-Georges Restaurants25.0 %— %45,626 — 692 — — 
Strategic Developments
Circle T Ranch and Power Center— %— %— — — — 2,463 
HHMK Development50.0 %50.0 %10 10 — — — 
KR Holdings50.0 %50.0 %485 127 797 (221)(69)
West End Alexandria (d)58.3 %58.3 %56,617 56,546 71 — — 
110 North Wacker— 23.0 %— — — — 267,518 
232,392 365,997 (19,187)(13,607)267,375 
Other equity investments (f)13,779 3,952 4,638 3,755 3,724 
Investments in unconsolidated ventures$246,171 $369,949 $(14,549)$(9,852)$271,099 
(a)Ownership interests presented reflect the Company’s stated ownership interest or if applicable, the Company’s final profit-sharing interest after receipt of any preferred returns based on the venture’s distribution priorities.
(b)The Metropolitan Downtown Columbia was in a deficit position of $9.0 million at December 31, 2022, and $11.3 million at December 31, 2021. These deficit balances are presented in Accounts payable and accrued expenses at December 31, 2022 and 2021.
(c)M.flats/TEN.M was in a deficit position of $1.8 million at December 31, 2022, and $6.0 million at December 31, 2021. The deficit balance is presented in Accounts payable and accrued expenses at December 31, 2022.
(d)For these equity method investments, various provisions in the venture operating agreements regarding distributions of cash flow based on capital account balances, allocations of profits and losses and preferred returns may result in the Company’s economic interest differing from its stated interest or final profit-sharing interest. For these investments, the Company recognizes income or loss based on the venture’s distribution priorities, which could fluctuate over time and may be different from its stated ownership or final profit-sharing interest.
(e)Classified as a VIE; however, the Company is not the primary beneficiary and accounts for its investment in accordance with the equity method. Refer to discussion below for additional information.
(f)Other equity investments represent investments not accounted for under the equity method. The Company elected the measurement alternative as these investments do not have readily determinable fair values. There were no impairments, or upward or downward adjustments to the carrying amounts of these securities either during 2022, or cumulatively. As of December 31, 2022, Other equity investments primarily includes $10.0 million of warrants, which represents cash paid by the Company for the option to acquire additional ownership interest in Jean-Georges Restaurants. Refer to discussion below for additional details.

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110 North Wacker The Company formed a partnership with a local developer (the Partnership) during the second quarter of 2017. During the second quarter of 2018, the Partnership executed an agreement with USAA related to 110 North Wacker (collectively, the local developer and USAA are the Partners) to construct and operate the building at 110 North Wacker through a separate legal entity (the Venture).

The Partnership was determined to be a VIE, and as the Company had the power to direct the activities of the Partnership that most significantly impact its economic performance, the Company was considered the primary beneficiary and consolidated the Partnership. Additionally, the local developer had the right to require the Company to purchase its interest in the Partnership if the Venture had not been sold or refinanced (with distributions made to the local developer and Company sufficient to repay all capital contributions) within a specified time period. Therefore, the local developer’s redeemable noncontrolling interest in the Partnership was presented as temporary equity as of December 31, 2021, on the Consolidated Balance Sheets.

The Company concluded that the Venture was within the scope of the VIE model, and that it was the primary beneficiary of the Venture during the development phase of the project, and thus consolidated the venture; however, upon the building’s completion in the third quarter of 2020, the Company concluded it was no longer the primary beneficiary, resulting in the deconsolidation of the Venture. As of September 30, 2020, the Company derecognized all assets, liabilities and noncontrolling interest related to the Venture, recognized an equity method investment based on the fair value of its interest in 110 North Wacker in the Operating Assets segment and recognized a gain on deconsolidation of $267.5 million in Equity in earnings (losses) from unconsolidated ventures in the Strategic Developments segment. In 2021, the Company recorded a $17.7 million impairment of its equity investment in the Venture due to a change in the anticipated holding period as it entered into a plan to sell the Partnership’s interest in the Venture.

On March 30, 2022, the Partnership completed the sale of its ownership interest in the Venture for a gross sales price of $208.6 million. Upon sale, the Company recognized income of $5.0 million in Equity in earnings (losses) from unconsolidated ventures in the Consolidated Statements of Operations. The amount recognized represents: (i) the difference between the sales price less related transaction costs of $17.6 million and the $195.0 million carrying value of the equity investment; (ii) a $0.4 million adjustment to the carrying value of the noncontrolling interest to reflect actual cash proceeds and (iii) $8.6 million of net fair value gains that were reclassed out of Accumulated other comprehensive income (loss) associated with the Venture’s derivative instruments. Based upon the Partnership’s waterfall, $168.9 million of the net sales proceeds were allocated to the Company with the remaining $22.1 million allocated to the local developer.

Upon the sale of the equity interest in the Venture, the local developer’s put right that could require the Company to purchase its interest in the Partnership lapsed. Therefore, the local developer’s redeemable noncontrolling interest in the Partnership, which represented its share of the sales proceeds was distributed in April 2022, and presented as cash outflows from financing activities on the Consolidated Statements of Cash Flows.

The following table presents changes in Redeemable noncontrolling interest:
thousandsRedeemable Noncontrolling Interest
Balance as of December 31, 2020$29,114 
Net income (loss) attributable to noncontrolling interest(7,431)
Share of investee's other comprehensive income817 
Balance as of December 31, 2021$22,500 
Net income (loss) attributable to noncontrolling interest— 
Share of investee's other comprehensive income(407)
Disposition of noncontrolling interest related to 110 North Wacker(22,093)
Balance as of December 31, 2022$—

The Lawn Club On January 19, 2021, the Company formed HHC Lawn Games, LLC with The Lawn Club NYC, LLC (Endorphin Ventures), to construct and operate an immersive indoor and outdoor restaurant that includes an extensive area of indoor grass, a stylish clubhouse bar and a wide variety of lawn games. This concept is expected to open in 2023. Under the terms of the agreement, the Company will fund 80% of the cost to construct the restaurant, and Endorphin Ventures will contribute the remaining 20%. The Company will recognize its share of income or loss based on the joint venture distribution priorities, which could fluctuate over time. Upon return of each member’s contributed capital and a preferred return to HHC, distributions and recognition of income or loss will be allocated to the Company based on its final profit-sharing interest. The Company also entered into a lease agreement with HHC Lawn Games, LLC to lease 20,000 square feet of the Fulton Market Building for this venture.

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Ssäm Bar In 2016, the Company formed Pier 17 Restaurant C101, LLC (Ssäm Bar) with MomoPier, LLC (Momofuku) to construct and operate a restaurant and bar at Pier 17 in the Seaport, which opened in 2019. The Company recognizes its share of income or loss based on the joint venture’s distribution priorities, which could fluctuate over time. As of December 31, 2022 and 2021, Ssäm Bar is classified as a VIE because the equity holders, as a group, lack the characteristics of a controlling financial interest; however, the Company is not the primary beneficiary. As of December 31, 2022, the Company’s maximum exposure to loss as a result of this investment is limited to the $5.6 million aggregate carrying value of this investment as the Company has not provided any guarantees or otherwise made firm commitments to fund amounts on behalf of this VIE.

Tin Building by Jean-Georges In 2015, the Company, together with VS-Fulton Seafood Market, LLC (Fulton Partner), formed Fulton Seafood Market, LLC (Tin Building by Jean-Georges) to operate a 53,783 square foot culinary marketplace in the historic Tin Building. The Fulton Partner is a wholly owned subsidiary of Jean-Georges Restaurants. The Company purchased a 25% interest in Jean-George Restaurants in March 2022 as discussed below.

The Company owns 100% of the Tin Building and leased 100% of the space to the Tin Building by Jean-Georges joint venture. Throughout this report, references to the Tin Building relate to the Company’s 100% owned landlord operations and references to the Tin Building by Jean-Georges refer to the managed business in which the Company has an equity ownership interest. The Company, as landlord, funded 100% of the development and construction of the Tin Building. Under the terms of the Tin Building by Jean-Georges LLC agreement, the Company contributes the cash necessary to fund pre-opening, opening and operating costs of Fulton Seafood Market LLC. The Fulton Partner is not required to make any capital contributions. The Tin Building was completed and placed in service during the third quarter of 2022 and the Tin Building by Jean-Georges culinary marketplace began operations in the third quarter of 2022. Based on capital contribution and distribution provisions for the Tin Building by Jean-Georges, HHC currently receives substantially all of the economic interest in the venture. Upon return of HHC’s contributed capital and a preferred return to HHC, distribution and recognition of income or loss will be allocated to the Company based on its final profit-sharing interest.

As of December 31, 2022, the Tin Building by Jean-Georges is classified as a VIE because the equity holders, as a group, lack the characteristics of a controlling financial interest. The Company further concluded that it is not the primary beneficiary of the VIE as it does not have the power to direct the restaurant-related activities that most significantly impact its economic performance. Because the Company is unable to quantify the maximum amount of additional capital contributions that may be funded in the future associated with this investment, the Company’s maximum exposure related to loss as a result of this investment is based upon the carrying value of the investment. The carrying value of the Tin Building by Jean-Georges as of December 31, 2022, is $6.9 million, which is comprised of $43.1 million of contributions made by the Company, partially offset by $36.2 million of equity losses for the year ended December 31, 2022, primarily related to pre-opening and start-up expenses.

Jean-Georges Restaurants On March 1, 2022, the Company acquired a 25% interest in JG Restaurant HoldCo LLC (Jean-Georges Restaurants) for $45.0 million from JG TopCo LLC (Jean-Georges). Jean-Georges Restaurants currently has over 40 hospitality offerings and a pipeline of new concepts. The Company accounts for its ownership interest in accordance with the equity method and recorded its initial investment at cost, inclusive of legal fees and transaction costs. Under the terms of the agreement, all cash distributions and the recognition of income-producing activities will be pro rata based on stated ownership interest.

Concurrent with the Company’s acquisition of the 25% interest in Jean-Georges Restaurants, the Company entered into a warrant agreement with Jean-Georges. The Company paid $10.0 million for the option to acquire up to an additional 20% interest in Jean-Georges Restaurants at a fixed exercise price per share subject to certain anti-dilution provisions. Should the warrant agreement be exercised by the Company, the $10.0 million will be credited against the aggregate exercise price of the warrants. Per the agreement, the $10.0 million is to be used for working capital of Jean-Georges Restaurants. The warrant became exercisable on March 2, 2022, subject to automatic exercise in the event of dissolution or liquidation, and will expire on March 2, 2026. As of December 31, 2022, this warrant has not been exercised. The Company elected the measurement alternative for this purchase option as the equity security does not have a readily determinable fair value. As such, the investment is measured at cost, less any identified impairment charges.

Creative Culinary Management Company, LLC (CCMC), a wholly owned subsidiary of Jean-Georges Restaurants, provides management services for certain retail and food and beverage businesses that HHC owns, either wholly or through partnerships with third parties. The Company’s businesses managed by CCMC include The Tin Building by Jean-Georges, The Fulton and Malibu Farm. Pursuant to the various management agreements, CCMC is responsible for employment and supervision of all employees providing services for the food and beverage operations and restaurant as well as the day-to-day operations and accounting for the food and beverage operations.

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The Summit During the first quarter of 2015, the Company formed DLV/HHPI Summerlin, LLC (The Summit) with Discovery Land Company (Discovery) to develop a custom home community in Summerlin.

Phase I The Company contributed land with a carrying value of $13.4 million and transferred SID bonds related to such land with a carrying value of $1.3 million to The Summit at the agreed upon capital contribution value of $125.4 million, or $226,000 per acre and has no further capital obligations. Discovery is required to fund up to a maximum of $30.0 million of cash as their capital contribution, of which $3.8 million has been contributed. The gains on the contributed land are recognized in Equity in earnings (losses) from unconsolidated ventures as The Summit sells lots. As of December 31, 2022, HHC has received its preferred return distributions and recognizes its share of income or loss for Phase I based on its final profit-sharing interest.

Phase II In July 2022, the Company contributed an additional 54 acres to The Summit (Phase II land) with a fair value of $21.5 million. The Company recognized an incremental equity method investment at the fair value of $21.5 million and recognized a gain of $13.5 million recorded in Equity in earnings (losses) from unconsolidated ventures. This gain is the result of marking the cost basis of the land contributed to its estimated fair value at the time of contribution. The Phase II land is adjacent to the existing Summit development and is currently planned for approximately 28 custom home sites that will be added to The Summit community. The Company will receive distributions and recognize its share of income or loss for Phase II based on the joint venture’s distribution priorities in the amended Summit LLC agreement, which could fluctuate over time. Upon receipt of preferred returns to HHC, distributions and recognition of income or loss will be allocated to the company based on its final profit-sharing interest.

Floreo (formerly named Trillium) In the fourth quarter of 2021, simultaneous with the Teravalis land acquisition, the Company closed on the acquisition of a 50% interest in Trillium Development Holding Company, LLC (Floreo), for $59.0 million and entered into a Limited Liability Company Agreement (LLC Agreement) with JDM Partners and El Dorado Holdings to develop the first village within the new Teravalis MPC on 3,029 acres of land in the greater Phoenix, Arizona area. The first Floreo land sales are expected to occur in the second half of 2023 subject to market conditions.

On October 25, 2022, Floreo closed on a $165.0 million financing, and at initial closing, outstanding borrowings were $57.5 million. The Company provided a guarantee on this financing in the form of a collateral maintenance obligation and received a guarantee fee of $5.0 million. The financing and related guarantee provided by the Company triggered a reconsideration event and as of December 31, 2022, Floreo is classified as a VIE. Due to rights held by other members, the Company does not have a controlling financial interest in Floreo and is not the primary beneficiary. As of December 31, 2022, the Company’s maximum exposure to loss as a result of this investment is limited to the $58.0 million aggregate carrying value as the Company has not made any other firm commitments to fund amounts on behalf of this VIE. See Note 10 - Commitments and Contingencies for additional information related to the Company’s collateral maintenance obligation.

West End Alexandria In the fourth quarter of 2021, the Company entered into an Asset Contribution Agreement with Landmark Land Holdings, LLC (West End Alexandria) to redevelop a 52-acre site previously known as Landmark Mall. Other equity owners include Foulger-Pratt Development, LLC (Foulger-Pratt) and Seritage SRC Finance (Seritage). The Company conveyed its 33-acre Landmark Mall property with an agreed upon fair value of $56.0 million and Seritage conveyed an additional 19 acres of land with an agreed upon fair value of $30 million to West End Alexandria in exchange for equity interest. Additionally, Foulger-Pratt agreed to contribute $10 million to West End Alexandria. Also in the fourth quarter of 2021, West End Alexandria executed a Purchase and Sale Agreement with the City of Alexandria to sell approximately 11 acres to the City of Alexandria. The City will lease this land to Inova Health Care Services for construction of a new hospital.

Development plans for the remaining 41-acre property include approximately four million square feet of residential, retail, commercial, and entertainment offerings integrated into a cohesive neighborhood with a central plaza, a network of parks and public transportation. Foulger-Pratt manages construction of the development. Demolition began in the second quarter of 2022, with completion of the first buildings expected in 2025.

The Company does not have the ability to control the activities that most impact the economic performance of the venture as Foulger-Pratt is the managing member and manages all development activities. As such, the Company accounts for its ownership interest in accordance with the equity method.

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Summarized Financial Information The following tables provide combined summarized financial statement information for the Company’s unconsolidated ventures. Financial statement information is included for each investment for all periods in which the Company’s ownership interest was accounted for as an equity method investment. Fluctuations in the amounts presented below are primarily related to 2022 activity, including the sale of the Company’s ownership interest in 110 North Wacker, partially offset by the Company’s acquisition of an ownership interest in Jean-Georges Restaurants and the additional contribution of Phase II land to The Summit.

thousandsDecember 31, 2022December 31, 2021
Balance Sheet
Total Assets$878,546 $1,442,894 
Total Liabilities505,643 918,847 
Total Equity372,903 524,047 

Year Ended December 31,
thousands202220212020
Income Statement
Revenues$232,786 $377,837 $190,605 
Operating Income9,815 145,471 42,964 
Net income (loss)(2,646)69,904 24,908 

3. Acquisitions and Dispositions

Acquisitions On March 1, 2022, the Company acquired a 25% interest in Jean-Georges Restaurants for $45.0 million and paid $10.0 million for the option to acquire up to an additional 20% interest in Jean-Georges Restaurants through March 2026. Jean-Georges Restaurants currently has over 40 hospitality offerings and a pipeline of new concepts. See Note 2 - Investments in Unconsolidated Ventures for additional information.

Teravalis (formerly named Douglas Ranch) In October 2021, the Company acquired Teravalis, a new large-scale master planned community in the West Valley of Phoenix, Arizona. The Company closed on the all-cash purchase of approximately 33,810 acres (Teravalis Property) for a purchase price of $541.0 million. Pursuant to the purchase and sale agreement, $33.8 million of the purchase price was held in escrow related to a six-month option for the seller, or permitted assignee, to repurchase up to 50% interest in the Teravalis Property. The total repurchase price payable pursuant to the option was $270.5 million, which consisted of a payment of $236.7 million and the $33.8 million withheld at the initial closing, plus 50% of any costs incurred to manage and maintain the Teravalis Property from the time of the original closing through the date that the option is exercised.

On April 13, 2022, the purchase and sale agreement was amended to extend the term of the option to June 17, 2022, and grant a minimum purchase of a 9.24% interest in the Teravalis Property for $50.0 million and up to a maximum purchase of a 50% interest for $270.5 million. On June 17, 2022, the seller’s assignee, JDM Member, exercised the minimum purchase option and purchased a 9.24% interest in the Teravalis Property for $50.0 million, inclusive of the $33.8 million previously held in escrow.

Immediately following the execution of the minimum purchase option, the Company entered into a Limited Liability Company Agreement (LLC Agreement) with JDM Member to form Douglas Ranch Development Holding Company (Teravalis). The Company and JDM Member then contributed their interests in the Teravalis Property to Teravalis in exchange for an equity interest, resulting in member equity interest of 90.76% for the Company and 9.24% for JDM Member. Teravalis was determined to be a VIE, and as the Company has the power to direct the activities that most significantly impact its economic performance, the Company is considered the primary beneficiary and HHC continued to consolidate Teravalis. Also in conjunction with the execution of the minimum purchase option, JDM Member paid $10.0 million for the option to repurchase up to the remaining 40.76% interest in Teravalis for $220.5 million on or before August 18, 2022.

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On August 18, 2022, JDM Member partially exercised the option and purchased an additional 2.78% interest in the Teravalis Property for $15.0 million, inclusive of the $10.0 million deposit previously received. JDM Member contributed their interest in the Teravalis Property to Teravalis in exchange for equity interest, resulting in member equity interest of 88.0% for the Company and 12.0% for JDM Member. As the exercise of this option did not change the rights of either the Company or JDM Member under LLC agreement, the Company will continue to consolidate Teravalis. The remaining purchase option expired upon partial purchase of this additional ownership interest.

Under the terms of the LLC agreement, cash distributions and the recognition of income-producing activities will be pro rata based on economic ownership interest. As of December 31, 2022, the Company’s Consolidated Balance Sheets include $541.2 million of Master Planned Community assets and $65.0 million of Noncontrolling interest related to Teravalis.
Floreo Simultaneous with the Teravalis land acquisition, the Company closed on the acquisition of a 50% interest in Trillium Development Holding Company, LLC (Floreo), for $59.0 million. Floreo owns approximately 3,029 acres of land in the greater Phoenix, Arizona area. See Note 2 - Investments in Unconsolidated Ventures for additional information.

Dispositions

Operating Assets On December 30, 2022, the Company completed the sale of Creekside Village Green, a 74,670-square-foot retail property in The Woodlands, Texas, for $28.4 million resulting in a gain of $13.4 million. The gain on sale is included in Gain (loss) on sale or disposal of real estate and other assets, net in the Consolidated Statements of Operations.

On December 21, 2022, the Company completed the sale of Lake Woodlands Crossing, a 60,261-square-foot retail property in The Woodlands, Texas, for $22.5 million resulting in a gain of $12.2 million. The gain on sale is included in Gain (loss) on sale or disposal of real estate and other assets, net in the Consolidated Statements of Operations. The Company retained the underlying land and simultaneously with the sale executed a 99-year ground lease with the buyer, which is classified as an operating lease.

On June 16, 2022, the Company completed the sale of the Outlet Collection at Riverwalk, a 264,080-square-foot outlet center located in downtown New Orleans, Louisiana, for $34.0 million resulting in a gain on sale of $4.0 million, inclusive of $0.5 million in related transaction costs. The gain on sale is included in Gain (loss) on sale or disposal of real estate and other assets, net in the Consolidated Statements of Operations.

On March 30, 2022, the Company completed the sale of its ownership interest in 110 North Wacker for $208.6 million. See Note 2 - Investments in Unconsolidated Ventures for additional information.

On September 16, 2021, the Company completed the sale of The Woodlands Resort, The Westin at The Woodlands and Embassy Suites at Hughes Landing for $252.0 million resulting in a gain on sale of $39.1 million, inclusive of approximately $2.9 million in related transaction costs. The gain on sale is included in Gain (loss) on sale or disposal of real estate and other assets, net in the Consolidated Statements of Operations. Additionally, as part of the sale, the Company repaid $132.3 million of debt directly associated with the properties sold.

On March 13, 2020, the Company closed on the sale of its property at 100 Fellowship Drive, a 13.5-acre land parcel and 203,257-square-foot build-to-suit medical building with approximately 550 surface parking spaces in The Woodlands, Texas, for a total sales price of $115.0 million. The sale of 100 Fellowship Drive resulted in an additional gain of $38.3 million in the first quarter of 2020, which is included in Gain (loss) on sale or disposal of real estate and other assets, net on the Consolidated Statements of Operations. This gain was in addition to $13.5 million of Selling profit from the sales-type lease recognized on the Consolidated Statements of Operations as of December 31, 2019. The Company had previously entered into a lease agreement related to this property in November of 2019, and at lease commencement, the Company derecognized $63.7 million from Developments and recorded an initial net investment in lease receivable of $75.9 million on the Consolidated Balance Sheets.

The carrying value of the net investment in lease receivable related to 100 Fellowship Drive was approximately $76.1 million at the time of sale. Gain on sale is calculated as the difference between the purchase price of $115.0 million, and the asset’s carrying value, less related transaction costs of approximately $0.2 million. Contemporaneous with the sale, the Company credited to the buyer approximately $0.6 million for operating account funds and the buyer’s assumption of the related liabilities. After the sale, the Company had no continuing involvement in this lease. After repayment of debt associated with the property, the sale generated approximately $64.2 million in net proceeds, which are presented as cash inflows from operating activities in the Consolidated Statements of Cash Flows for the year ended December 31, 2020.
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Strategic Developments On December 22, 2021, the Company completed the sale of Century Park, a 63-acre, 1,302,597-square-foot campus with 17 office buildings in the West Houston Energy Corridor, for $25.0 million resulting in a loss on sale of $7.4 million, inclusive of approximately $0.4 million in related transaction costs. The loss on sale is included in Gain (loss) on sale or disposal of real estate and other assets, net in the Consolidated Statements of Operations. This asset was previously impaired during the second quarter of 2021.

On May 7, 2021, the Company completed the sale of Monarch City, a property comprised of approximately 229 acres of undeveloped land in Collin County, Texas, for $51.4 million, resulting in a gain on sale of $21.3 million, inclusive of approximately $1.5 million in related transaction costs. The gain on sale is included in Gain (loss) on sale or disposal of real estate and other assets, net in the Consolidated Statements of Operations.

On December 18, 2020, the Company completed the sale to its joint venture partner of its 50% equity method investment in Circle T Ranch and Power Center, a joint venture with Westlake Retail Associates for $13.0 million. The carrying value of the asset at the time of sale was approximately $11.9 million and the Company recognized a gain on sale of $1.1 million which is included in Equity in earnings (losses) from unconsolidated ventures on the Consolidated Statements of Operations.

On November 20, 2020, the Company completed the sale of its Elk Grove asset, a 64-acre land parcel in the City of Elk Grove, California, for $24.6 million. The carrying value of the asset at the time of sale was approximately $10.8 million and the Company recognized a gain on sale of $13.7 million which is included in Gain (loss) on sale or disposal of real estate and other assets, net on the Consolidated Statements of Operations.

On June 29, 2020, the Company entered into an agreement terminating a participation right contained in the contract for the sale of West Windsor that occurred in October 2019. As consideration, the Company received an $8.0 million termination payment in 2020, which is included in Gain (loss) on sale or disposal of real estate and other assets, net on the Consolidated Statements of Operations for the year ended December 31, 2020.

Seaport On July 16, 2020, the Company completed the sale to its joint venture partner of its 35% equity investment in Mr. C Seaport, a 66-room boutique hotel located at 33 Peck Slip, New York, in close proximity to the Seaport, for $0.8 million. The carrying value at the time of sale approximated the sales price. Refer to Note 2 - Investments in Unconsolidated Ventures and Note 4 - Impairment for additional information.

4. Impairment

The Company reviews its long-lived assets for potential impairment indicators whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. No impairment charges were recorded during the year ended December 31, 2022.

In 2021, the Company recorded a $13.1 million impairment charge for Century Park, a non-core asset acquired as part of the acquisition of The Woodlands Towers at The Waterway. The Century Park asset included both building and land components. The impairment related to the building component, while the land component was not impaired. The Company recognized an impairment due to decreases in estimated future cash flows and as a result of the impact of a shorter-than-anticipated holding term. The Company used weighted market and income valuation techniques to estimate the fair value of Century Park. Market valuation was based on recent sales of similar commercial properties in and around Houston, Texas. For the income approach, the Company utilized a capitalization rate of 8.75%, and probability-weighted scenarios assuming lease-up periods ranging from 24 months to 48 months, and management’s estimate of future lease income and carry costs. In December 2021, the Company completed the sale of Century Park.

In 2020, the Company recorded a $48.7 million impairment charge for Outlet Collection at Riverwalk. The Company recognized the impairment due to decreases in estimated future cash flows as a result of the impact of a shorter-than-anticipated holding term due to management’s plans to divest the non-core operating asset, decreased demand and reduced interest in brick and mortar retail due to the impact of COVID-19, as well as an increase in the capitalization rate used to evaluate future cash flows due to the impact of COVID-19. The Company used a discounted cash flow analysis using a capitalization rate of 10% to determine fair value. In June 2022, the Company completed the sale of the Outlet Collection at Riverwalk.

Each investment in an unconsolidated venture discussed in Note 2 - Investments in Unconsolidated Ventures is evaluated periodically for recoverability and valuation declines that are other-than-temporary. If the decrease in value of an investment is deemed to be other-than-temporary, the investment is reduced to its estimated fair value. No impairment charges were recorded during the year ended December 31, 2022.
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In 2021, the Company recorded a $17.7 million impairment of its equity investment in 110 North Wacker. The Company recognized the impairment due to a change in the anticipated holding period as the Company entered into a plan to sell its interest in 110 North Wacker. In March 2022, the Company completed the sale of its ownership interest in 110 North Wacker.

In 2020, the Company recorded a $6.0 million impairment of its equity investment in Mr. C Seaport. The Company recognized the impairment due to a change in the anticipated holding period as the Company entered into a plan to sell its 35% equity investment in Mr. C Seaport to its venture partners. In July 2020, the Company completed the sale of its interest in Mr. C Seaport.

For information regarding the asset sales discussed above, see Note 3 - Acquisitions and Dispositions.

The Company periodically evaluates strategic alternatives with respect to each property and may revise the strategy from time to time, including the intent to hold the asset on a long-term basis or the timing of potential asset dispositions. For example, the Company may decide to sell property that is held for use, and the sale price may be less than the carrying amount. As a result, changes in strategy could result in impairment charges in future periods.

In addition to the impairments discussed above, the Company reduced the estimated net sales price of certain condominium units, including the remaining penthouse inventory, to better align the expected price with recent final sales prices, resulting in a loss of $2.3 million for the year ended December 31, 2021, and a loss of $7.6 million for the year ended December 31, 2020, included in Condominium rights and unit cost of sales.

The following table summarizes the pre-tax impacts of the items mentioned above on the Consolidated Statements of Operations for the years ended December 31, 2021, and 2020. There were no impairments in 2022.
thousandsStatements of Operations Line Item20212020
Operating assets:
Outlet Collection at RiverwalkProvision for impairment$— $48,738 
Century ParkProvision for impairment13,068 — 
Equity Investments:
110 North WackerEquity in earnings (losses) from unconsolidated ventures17,673 — 
Mr. C SeaportEquity in earnings (losses) from unconsolidated ventures— 6,000 
Other Assets:
Condominium InventoryCondominium rights and unit sales2,268 7,644 
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5. Other Assets and Liabilities

Prepaid Expenses and Other Assets The following table summarizes the significant components of Prepaid expenses and other assets as of December 31:
thousands20222021
Special Improvement District receivable$64,091 $86,165 
Security, escrow and other deposits48,578 45,546 
In-place leases39,696 44,225 
Interest rate derivative assets30,860 1,257 
Intangibles25,170 29,752 
Condominium inventory22,452 57,507 
Prepaid expenses18,806 21,370 
Other11,683 6,617 
Tenant incentives and other receivables8,252 6,623 
TIF receivable1,893 855 
Food and beverage and lifestyle inventory872 1,039 
Prepaid expenses and other assets, net$272,353 $300,956 

Accounts Payable and Accrued Expenses The following table summarizes the significant components of Accounts payable and accrued expenses as of December 31:
thousands20222021
Condominium deposit liabilities$390,253 $368,997 
Construction payables260,257 284,384 
Deferred income85,006 71,902 
Accrued interest49,156 47,738 
Accrued real estate taxes37,835 26,965 
Accounts payable and accrued expenses36,174 72,828 
Accrued payroll and other employee liabilities30,874 29,648 
Other28,856 23,310 
Tenant and other deposits26,100 30,943 
Interest rate derivative liabilities— 26,452 
Accounts payable and accrued expenses$944,511 $983,167 

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6. Intangibles

The following table summarizes the Company’s intangible assets and liabilities:
 As of December 31, 2022As of December 31, 2021
Gross Asset (Liability)Accumulated (Amortization)/ AccretionNet Carrying AmountGross Asset (Liability)Accumulated (Amortization)/ AccretionNet Carrying Amount
 
thousands
Intangible Assets:      
Other intangibles (a)$34,123 $(9,110)$25,013 $34,123 $(5,834)$28,289 
Goodwill— — — 1,307 — 1,307 
Indefinite lived intangibles157 — 157 157 — 157 
Tenant leases:
In-place value57,087 (17,391)39,696 63,249 (19,024)44,225 
Above-market500 (446)54 1,951 (1,790)161 
Below-market(4,255)3,512 (743)(4,729)3,539 (1,190)
Total indefinite lived intangibles$157 $1,464 
Total amortizing intangibles$64,020 $71,485 
(a)Primarily associated with the Company’s Las Vegas Aviators Triple-A professional baseball team

The tenant in-place, above-market and below-market lease intangible assets resulted from real estate acquisitions. The in‑place value and above-market value of tenant leases are included in Prepaid expenses and other assets, net and are amortized over periods that approximate the related lease terms. The below‑market tenant leases are included in Accounts payable and accrued expenses and are amortized over the remaining non-cancelable terms of the respective leases. See Note 5 - Other Assets and Liabilities for additional information regarding Prepaid expenses and other assets, net and Accounts payable and accrued expenses.

Net amortization and accretion expense for these intangible assets and liabilities was $7.5 million in 2022, $7.5 million in 2021 and $5.8 million in 2020.

Future net amortization and accretion expense is estimated for each of the five succeeding years as shown below:
thousands20232024202520262027
Net amortization and accretion expense$7,076 $7,080 $7,240 $7,212 $6,933 

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7. Mortgages, Notes and Loans Payable, Net

Mortgages, Notes and Loans Payable Mortgages, notes and loans payable, net are summarized as follows:
December 31,
thousands20222021
Fixed-rate debt
Senior unsecured notes$2,050,000 $2,050,000 
Secured mortgages payable1,500,841 1,006,428 
Special Improvement District bonds59,777 69,131 
Variable-rate debt (a)
Secured Bridgeland Notes275,000 275,000 
Senior Secured Credit Facility— 316,656 
Secured mortgages payable916,570 922,201 
Unamortized deferred financing costs (b)(55,005)(48,259)
Mortgages, notes and loans payable, net$4,747,183 $4,591,157 
(a)The Company has entered into derivative instruments to manage a portion of the variable interest rate exposure. See Note 9 - Derivative Instruments and Hedging Activities for additional information.
(b)Deferred financing costs are amortized to interest expense over the initial contractual term of the respective financing agreements using the effective interest method (or other methods which approximate the effective interest method).

As of December 31, 2022, land, buildings and equipment, developments and other collateral with an aggregate net book value of $4.4 billion have been pledged as collateral for HHC’s debt obligations. HHC’s senior notes totaling $2.1 billion and $87.6 million of Secured mortgages payable are recourse to the Company.

Senior Unsecured Notes During 2020 and 2021, the Company issued $2.1 billion of aggregate principal of senior unsecured notes. These notes have fixed rates of interest that are payable semi-annually and are interest only until maturity. These debt obligations are redeemable prior to the maturity date subject to a “make-whole” premium which decreases annually until 2026 at which time the redemption make-whole premium is no longer applicable. The following table summarizes the Company’s senior unsecured notes by issuance date:
$ in thousandsPrincipalMaturity DateInterest Rate
August 2020$750,000 August 20285.375%
February 2021650,000 February 20294.125%
February 2021650,000 February 20314.375%
Senior unsecured notes$2,050,000 

Secured Mortgages Payable The Company’s outstanding mortgages are collateralized by certain of the Company’s real estate assets. Certain of the Company’s loans contain provisions that grant the lender a security interest in the operating cash flow of the property that represents the collateral for the loan. Certain mortgage notes may be prepaid subject to a prepayment penalty equal to a yield maintenance premium, defeasance, or a percentage of the loan balance. Construction loans related to the Company’s development properties are generally variable-rate, interest-only, and have maturities of 5 years or less. Debt obligations related to the Company’s operating properties generally require monthly installments of principal and interest over its contractual life.

The following table summarizes the Company’s Secured mortgages payable:
December 31, 2022December 31, 2021
$ in thousandsPrincipalRange of Interest RatesWeighted-average Interest RateWeighted-average Years to MaturityPrincipalRange of Interest RatesWeighted-average Interest RateWeighted-average Years to Maturity
Fixed rate (a)$1,500,841 3.13% - 7.67%4.39 %7.4$1,006,428 3.13% - 4.92%3.92 %8.7
Variable rate (b)916,570 6.05% - 9.39%7.36 %2.6922,201 1.70% - 5.10%2.99 %1.9
Secured mortgages payable$2,417,411 3.13% - 9.39%5.51 %5.6$1,928,629 1.70% - 5.10%3.48 %5.5
(a)Interest rates presented are based upon the coupon rates of the Company’s fixed-rate debt obligations.
(b)Interest rates presented are based on the applicable reference interest rates as of December 31, 2022 and 2021, excluding the effects of interest rate derivatives.
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The Company has entered into derivative instruments to manage a portion of the Company’s variable interest rate exposure. The weighted-average interest rate of the Company’s variable-rate mortgages payable, inclusive of interest rate hedges, was 5.91% as of December 31, 2022, and 3.71% as of December 31, 2021. See Note 9 - Derivative Instruments and Hedging Activities for additional information.

The Company’s secured mortgages mature over various terms through December 2039. On certain of its debt obligations, the Company has the option to exercise extension options, subject to certain terms, which may include minimum debt service coverage, minimum occupancy levels or condominium sales levels, as applicable, and other performance criteria. In certain cases, due to property performance not meeting identified covenants, the Company may be required to pay down a portion of the loan to exercise the extension option.

During 2022, the Company’s mortgage activity included new borrowings of $899.2 million (excluding undrawn amounts on new construction loans), draws on existing mortgages of $336.7 million, and repayments of $790.7 million. As of December 31, 2022, the Company’s secured mortgage loans had $934.1 million of undrawn lender commitment available to be drawn for property development, subject to certain restrictions.

Special Improvement District Bonds The Summerlin MPC uses SID bonds to finance certain common infrastructure improvements. These bonds are issued by the municipalities and are secured by the assessments on the land. The majority of proceeds from each bond issued is held in a construction escrow and disbursed to the Company as infrastructure projects are completed, inspected by the municipalities and approved for reimbursement. Accordingly, the SID bonds have been classified as debt, and the Summerlin MPC pays the debt service on the bonds semi‑annually. As Summerlin sells land, the buyers assume a proportionate share of the bond obligation at closing, and the residential sales contracts provide for the reimbursement of the principal amounts that the Company previously paid with respect to such proportionate share of the bond. These bonds bear interest at fixed rates ranging from 4.13% to 6.05% with maturities ranging from 2025 to 2051 as of December 31, 2022, and fixed rates ranging from 4.00% to 6.05% with maturities ranging from 2025 to 2051 as of December 31, 2021. For the year ended December 31, 2022, obligations of $7.8 million were assumed by buyers and no SID bonds were issued.

Secured Bridgeland Notes In September 2021, the Company closed on a $275.0 million financing with maturity in 2026. This financing is secured by MUD receivables and land in Bridgeland. The loan required a $27.5 million fully refundable deposit and has a net effective interest rate of 6.60%, based on the Secured Overnight Financing Rate (SOFR) of 4.30% at December 31, 2022. In December 2022, the borrowing capacity of this obligation was expanded from $275.0 million to $475.0 million, resulting in available capacity of $200.0 million as of December 31, 2022.

Senior Secured Credit Facility In 2018, the Company entered into a $700.0 million loan agreement, which provided for a $615.0 million term loan (the Term Loan) and an $85.0 million revolver loan (the Revolver Loan and together with the Term Loan, the Senior Secured Credit Facility). There were no outstanding borrowings under the Revolver Loan in 2022. In the fourth quarter of 2022, the Company fully repaid the outstanding borrowings under the Term Loan and retired the Senior Secured Credit Facility. Prior to the repayment, any outstanding balances were swapped to a fixed interest rate of 4.61%.

Debt Compliance As of December 31, 2022, the Company was in compliance with all debt covenants with the exception of the debt service coverage ratios for three property-level debt instruments. As a result, the excess net cash flow after debt service from the underlying properties became restricted. While the restricted cash could not be used for general corporate purposes, it could be used to fund operations of the underlying assets and did not have a material impact on the Company’s liquidity or its ability to operate these assets.

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Scheduled Maturities The following table summarizes the contractual obligations relating to the Company’s mortgages, notes and loans payable as of December 31, 2022:
thousandsMortgages, notes and loans payable principal payments
2023$166,062 
202462,150 
2025386,314 
2026556,475 
2027298,458 
Thereafter3,332,729 
Total principal payments4,802,188 
Unamortized deferred financing costs(55,005)
Mortgages, notes and loans payable$4,747,183 

8. Fair Value

ASC 820, Fair Value Measurement, emphasizes that fair value is a market-based measurement that should be determined using assumptions market participants would use in pricing an asset or liability. The standard establishes a hierarchical disclosure framework that prioritizes and ranks the level of market price observability used in measuring assets or liabilities at fair value. Market price observability is impacted by a number of factors, including the type of investment and the characteristics specific to the asset or liability. Assets or liabilities with readily available active quoted prices, or for which fair value can be measured from actively quoted prices, generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

The following table presents the fair value measurement hierarchy levels required under ASC 820 for the Company’s liabilities that are measured at fair value on a recurring basis:
 December 31, 2022December 31, 2021
 Fair Value Measurements UsingFair Value Measurements Using
thousandsTotalQuoted Prices in Active Markets for Identical Assets
(Level 1)		Significant Other Observable Inputs
(Level 2)		Significant Unobservable Inputs
(Level 3)		TotalQuoted Prices in Active Markets for Identical Assets
(Level 1)		Significant Other Observable Inputs
(Level 2)		Significant Unobservable Inputs
(Level 3)
Assets:
Interest rate derivative assets$30,860 $— $30,860 $— $1,257 $— $1,257 $— 
Liabilities:
Interest rate derivative liabilities$— $— $— $— $26,452 $— $26,452 $— 

The fair values of interest rate derivatives are determined using the market standard methodology of netting the discounted future fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectation of future interest rates derived from observable market interest rate curves.

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The estimated fair values of the Company’s financial instruments that are not measured at fair value on a recurring basis are as follows:
  December 31, 2022December 31, 2021
thousandsFair Value HierarchyCarrying AmountEstimated Fair ValueCarrying AmountEstimated Fair Value
Assets:     
Cash and Restricted cashLevel 1$1,098,937 $1,098,937 $1,216,637 $1,216,637 
Accounts receivable, net (a)Level 3103,437 103,437 86,388 86,388 
Notes receivable, net (b)Level 33,339 3,339 7,561 7,561 
Liabilities:
Fixed-rate debt (c)Level 23,610,618 3,298,859 3,125,559 3,186,139 
Variable-rate debt (c)Level 21,191,570 1,191,570 1,513,857 1,513,857 
(a)Accounts receivable, net is shown net of an allowance of $8.9 million at December 31, 2022, and $16.5 million at December 31, 2021. Refer to Note 1 - Summary of Significant Accounting Policies for additional information on the allowance.
(b)Notes receivable, net is shown net of an allowance of $0.1 million at December 31, 2022, and $0.2 million at December 31, 2021.
(c)Excludes related unamortized financing costs.

The carrying amounts of Cash and Restricted cash, Accounts receivable, net and Notes receivable, net approximate fair value because of the short‑term maturity of these instruments.

The fair value of the Company’s Senior Notes, included in fixed-rate debt in the table above, is based upon the trade price closest to the end of the period presented. The fair value of other fixed-rate debt in the table above was estimated based on a discounted future cash payment model, which includes risk premiums and risk-free rates derived from the current LIBOR or U.S. Treasury obligation interest rates. Refer to Note 7 - Mortgages, Notes and Loans Payable, Net for additional information. The discount rates reflect the Company’s judgment as to what the approximate current lending rates for loans or groups of loans with similar maturities and credit quality would be if credit markets were operating efficiently and assuming that the debt is outstanding through maturity.

The carrying amounts for the Company’s variable-rate debt approximate fair value given that the interest rates are variable and adjust with current market rates for instruments with similar risks and maturities.

The below table includes a non-financial asset that was measured at fair value on a non-recurring basis resulting in the property being impaired:
Fair Value Measurements Using
thousandsSegmentTotal Fair Value MeasurementQuoted Prices in Active Markets for Identical Assets
(Level 1)		Significant Other Observable Inputs
(Level 2)		Significant Unobservable Inputs
(Level 3)
2021
Century Park (a)Strategic Developments$32,000 $— $— $32,000 
(a)The fair value was measured using weighted income and market valuation techniques as of the impairment date in the second quarter of 2021. Refer to Note 4 - Impairment for additional information.

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9. Derivative Instruments and Hedging Activities

The Company is exposed to interest rate risk related to its variable interest rate debt, and it manages this risk by utilizing interest rate derivatives. The Company uses interest rate swaps and caps to add stability to interest costs by reducing the Company’s exposure to interest rate movements. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company’s fixed‑rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up‑front premium. Certain of the Company’s interest rate caps are not currently designated as hedges, and therefore, any gains or losses are recognized in current-period earnings within Interest expense on the Consolidated Statements of Operations. These derivatives are recorded on a gross basis at fair value on the balance sheet.

Assessments of hedge effectiveness are performed quarterly using regression analysis. The change in the fair value of derivatives designated and qualifying as cash flow hedges is recorded in Accumulated other comprehensive income (loss) (AOCI) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings within the same income statement line item being hedged. Derivatives accounted for as cash flow hedges are classified in the same category in the Consolidated Statements of Cash Flows as the items being hedged. Gains and losses from derivative financial instruments are reported in Cash provided by (used in) operating activities within the Consolidated Statements of Cash Flows.

The Company is exposed to credit risk in the event of non-performance by its derivative counterparties. To mitigate its credit risk, the Company reviews the creditworthiness of counterparties and enters into agreements with those that are considered credit-worthy, such as large financial institutions with favorable credit ratings. There were no derivative counterparty defaults as of December 31, 2022 and 2021.

If the derivative contracts are terminated prior to their maturity, the amounts previously recorded in AOCI are recognized in earnings over the period that the hedged transaction impacts earnings. During the years ended December 31, 2022 and 2021, there were no termination events. During the year ended December 31, 2022, the Company recorded an immaterial reduction in Interest expense related to the amortization of a previously terminated swap.

Amounts reported in AOCI related to derivatives will be reclassified to Interest expense as interest payments are made on the Company’s variable‑rate debt. Over the next 12 months, HHC estimates that $13.3 million of net gain will be reclassified to Interest expense including amounts related to the amortization of terminated swaps.

The following table summarizes certain terms of the Company’s derivative contracts. The Company reports derivative assets in Prepaid expenses and other assets, net and derivative liabilities in Accounts payable and accrued expenses.
Fair Value Asset (Liability)
NotionalFixed InterestEffectiveMaturityDecember 31,December 31,
thousandsAmountRate (a)DateDate20222021
Derivative instruments not designated as hedging instruments: (b)
Interest rate cap285,0002.00%3/12/20219/15/2023$5,748 $300 
Interest rate cap83,2002.00%3/12/20219/15/20231,677 87 
Interest rate cap75,0002.50%10/12/20219/29/20253,791 485 
Interest rate cap59,5002.50%10/12/20219/29/20253,007 385 
Derivative instruments designated as hedging instruments:
Interest rate swap615,0002.96%9/21/20189/18/2023$8,262 $(23,477)
Interest rate swap200,0003.69%1/3/20231/1/2027978 — 
Interest rate cap127,0005.50%11/10/202211/7/2024378 — 
Interest rate cap75,0005.00%12/22/202212/21/2025655 — 
Interest rate swap40,8001.68%3/1/20222/18/20273,321 — 
Interest rate swap35,2964.89%11/1/20191/1/20323,043 (2,975)
Total fair value derivative assets$30,860 $1,257 
Total fair value derivative liabilities— (26,452)
Total fair value derivatives asset (liability), net$30,860 $(25,195)
(a)These rates represent the swap rate and cap strike rate on HHC’s interest rate swaps and caps.
(b)Interest income related to these contracts was $13.0 million for the year ended December 31, 2022, and was not material in 2021.

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The tables below present the effect of the Company’s derivative financial instruments on the Consolidated Statements of Operations for the years ended December 31:
Derivatives in Cash Flow Hedging RelationshipsAmount of Gain (Loss) Recognized in AOCI on Derivatives
thousands202220212020
Interest rate derivatives$25,657 $5,300 $(34,906)
Location of Gain (Loss) Reclassified from AOCI into Statements of OperationsAmount of Gain (Loss) Reclassified from AOCI into Statements of Operations
thousands202220212020
Interest expense$(6,041)$(12,660)$(11,836)

Credit-risk-related Contingent Features The Company has agreements with certain derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations. The Company also has agreements with certain derivative counterparties that contain a provision where the Company could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the Company’s default on the indebtedness. None of the Company’s derivatives which contain credit-risk-related features were in a net liability position as of December 31, 2022.

10. Commitments and Contingencies

Litigation In the normal course of business, from time to time, the Company is involved in legal proceedings relating to the ownership and operations of its properties. In management’s opinion, the liabilities, if any, that may ultimately result from normal course of business legal actions are not expected to have a material effect on the Company’s consolidated financial position, results of operations or liquidity.

On June 14, 2018, the Company was served with a petition involving approximately 500 individuals or entities who claim that their properties, located in the Timarron Park neighborhood of The Woodlands, were damaged by flood waters that resulted from the unprecedented rainfall that occurred throughout Harris County and surrounding areas during Hurricane Harvey in August 2017. The complaint was filed in State Court in Harris County of the State of Texas. In general, the plaintiffs allege negligence in the development of Timarron Park and violations of Texas’ Deceptive Trade Practices Act and name as defendants The Howard Hughes Corporation, The Woodlands Land Development Company and two unaffiliated parties involved in the planning and engineering of Timarron Park. The plaintiffs are seeking restitution for damages to their property and diminution of their property values. On August 9, 2022, the Court granted the Company’s summary judgment motions and dismissed the plaintiffs’ claims. On September 8, 2022, the plaintiffs filed a motion for a new trial. On October 21, 2022, the Court denied the motion for a new trial. On November 7, 2022, the Plaintiffs filed their notice of appeal. The Company will continue to vigorously defend the matter as it believes that these claims are without merit and that it has substantial legal and factual defenses to the claims and allegations contained in the complaint. Based upon the present status of this matter, the Company does not believe it is probable that a loss will be incurred. Accordingly, the Company has not recorded a charge as a result of this action.

The Company entered into a settlement agreement with the Waiea homeowners association related to certain construction defects at the condominium tower. Pursuant to the settlement agreement, the Company will pay for the repair of the defects. The Company believes that the general contractor is ultimately responsible for the defects and expects to recover all the repair costs from the general contractor, other responsible parties and insurance proceeds; however, the Company can provide no assurances that all or any portion of the costs will be recovered. The Company recorded total expenses of $99.2 million for the estimated repair costs related to this matter during 2020, with an additional $21.0 million charged during 2021, and $2.7 million charged during 2022. These amounts were included in Condominium rights and unit cost of sales in the accompanying Consolidated Statements of Operations. As of December 31, 2022, a total of $35.2 million remains in Construction payables for the estimated repair costs related to this matter, which is included in Accounts payable and accrued expenses in the accompanying Consolidated Balance Sheets.

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250 Water Street In 2021, the Company received the necessary approvals for its 250 Water Street development project, which includes a mixed-use development with affordable and market-rate apartments, community-oriented spaces and office space. In May 2021, the Company received approval from the New York City Landmarks Preservation Commission (LPC) on its proposed design for the 250 Water Street site. The Company received final approvals in December 2021 through the New York City Uniform Land Use Review Procedure known as ULURP, which allowed the necessary transfer of development rights to the parking lot site. The Company began initial foundation and voluntary site remediation work in the second quarter of 2022.

The Company has prevailed in various lawsuits filed in 2021 and 2022 challenging the zoning and development approvals in order to prevent construction of this project. In September 2021, the New York State Supreme Court dismissed on procedural grounds a lawsuit challenging the LPC approval. In February 2022, an additional lawsuit was filed in New York State Supreme Court by opponents of the project challenging the land use approvals for 250 Water Street previously granted to the Company under the ULURP, and in August 2022 the Court ruled in the Company’s favor, denying all claims of the petitioners. The same petitioners subsequently filed a request to reargue and renew the case, which the Court rejected in January 2023.

A separate lawsuit was filed in July 2022 again challenging the Landmarks Preservation Commission approval. In January 2023, a Court ruled in favor of the petitioners vacating the Certificate of Appropriateness (COA) issued by the LPC, and ordered construction to cease at 250 Water Street, absent further court order. The Company immediately appealed this decision. On January 19, 2023, an appellate court judge granted an interim stay of the trial court’s order, that allowed construction work, which resumed in February 2023, to continue unabated pending a full hearing by the Appellate Division on February 27, 2023. Although it is not possible to predict with certainty the outcome of the appeal, the Company believes that it has substantial legal and factual defenses to overturn on appeal the trial court’s verdict. The lawsuit is not seeking monetary damages as the petitioners are seeking to enjoin the Company from moving forward with the development of 250 Water Street. Because the Company believes that a potential loss is not probable or estimable, it has not recorded any reserves or contingencies related to this legal matter.

Letters of Credit and Surety Bonds As of December 31, 2022, the Company had outstanding letters of credit totaling $2.1 million and surety bonds totaling $346.3 million. As of December 31, 2021, the Company had outstanding letters of credit totaling $5.1 million and surety bonds totaling $331.0 million. These letters of credit and bonds were issued primarily in connection with insurance requirements, special real estate assessments and construction obligations.

Operating Leases The Company leases land or buildings at certain properties from third parties, which are recorded in Operating lease right-of-use assets, net and Operating lease obligations on the Consolidated Balance Sheets. See Note 17 - Leases for further discussion. Contractual rental expense, including participation rent, was $5.6 million for the year ended December 31, 2022, $7.2 million for the year ended December 31, 2021, and $7.2 million for the year ended December 31, 2020. The amortization of above and below‑market ground leases and straight‑line rents included in the contractual rent amount was not significant.

Guarantee Agreements In October 2022, Floreo, the Company’s 50% owned joint venture in Teravalis, closed on a $165 million bond financing with Mizuho Capital Markets, LLC (Mizuho), and at initial closing, borrowed $57.5 million. A wholly owned subsidiary of the Company (HHC Member) provided a guarantee for the bond in the form of a collateral maintenance commitment under which it will post refundable cash collateral if the Loan-to-Value (LTV) ratio exceeds 50%. A separate wholly owned subsidiary of the Company also provided a backstop guarantee of up to $50 million of the cash collateral commitment in the event HHC Member fails to make necessary payments when due. The cash collateral becomes nonrefundable if Floreo defaults on the bond obligation. The Company received a fee of $5.0 million in exchange for providing this guarantee, which was recognized in Accounts payable and accrued expenses on the Consolidated Balance Sheets as of December 31, 2022. This liability amount will be recognized in Other income (loss), net in a manner that corresponds to the bond repayment by Floreo. The Company’s maximum exposure under this guarantee is equal to the cash collateral that the Company may be obligated to post. As of December 31, 2022, the Company has not posted any cash collateral. Given the existence of other collateral including the undeveloped land owned by Floreo, the entity’s extensive and discretionary development plan and its eligibility for reimbursement of a significant part of the development costs from the Community Facility District in Arizona, the Company does not expect to have to post collateral.

In conjunction with the execution of the ground lease for the Seaport, the Company executed a completion guarantee for the core and shell construction of the Tin Building. The core and shell construction was completed in the fourth quarter of 2021, and the remainder of construction was completed in the third quarter of 2022. The Company received the necessary approvals from the New York City Economic Development Corporation to relinquish the guarantee in early 2023.

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The Company’s wholly owned subsidiaries agreed to complete defined public improvements and to indemnify Howard County, Maryland, for certain matters as part of the Downtown Columbia Redevelopment District TIF bonds. To the extent that increases in taxes do not cover debt service payments on the TIF bonds, the Company’s wholly owned subsidiary is obligated to pay special taxes. Management has concluded that, as of December 31, 2022, any obligations to pay special taxes are not probable.

As part of the Company’s development permits with the Hawai‘i Community Development Authority for the condominium towers at Ward Village, the Company entered into a guarantee whereby it is required to reserve 20% of the residential units for local residents who meet certain maximum income and net worth requirements. This guarantee, which is triggered once the necessary permits are granted and construction commences, was satisfied for Waiea, Anaha and Ae‘o, with the opening of Ke Kilohana, which is a workforce tower fully earmarked to fulfill this obligation for the first four towers. The reserved units for ‘A‘ali‘i tower are included in the ‘A‘ali‘i tower. Units for Kō‘ula, Victoria Place, and The Park Ward Village will be satisfied with the construction of Ulana Ward Village, which is a second workforce tower fully earmarked to fulfill the remaining reserved housing guarantee in the community. Ulana Ward Village began construction in early 2023. The Company expects reserved housing towers to be delivered on a break-even basis.

The Company evaluates the likelihood of future performance under these guarantees and, as of December 31, 2022, and 2021, there were no events requiring financial performance under these guarantees.

11. Stock-Based Compensation Plans

On May 14, 2020, the Company’s shareholders approved The Howard Hughes Corporation 2020 Equity Incentive Plan (the 2020 Equity Plan). Pursuant to the 2020 Equity Plan, 1,350,000 shares of the Company’s common stock were reserved for issuance. The 2020 Equity Plan provides for grants of options, stock appreciation rights, restricted stock, restricted stock units and other stock-based awards (collectively, the Awards). Employees, directors and consultants of the Company are eligible for Awards. The 2020 Equity Incentive Plan is administered by the Compensation Committee of the Board of Directors.

Prior to the adoption of the 2020 Equity Plan, equity awards were issued under The Howard Hughes Corporation Amended and Restated 2010 Equity Incentive Plan (the 2010 Equity Plan). The adoption of the 2020 Equity Plan did not impact the administration of Awards issued under the 2010 Equity Plan but following adoption of the 2020 Equity Plan, equity awards will no longer be granted under the 2010 Equity Plan.

As of December 31, 2022, there were a maximum of 948,606 shares available for future grants under the Company’s 2020 Equity Plan.

The following summarizes stock-based compensation expense, net of amounts capitalized to development projects, for the years ended December 31:
thousands202220212020
Stock Options (a)(b)$250 $227 $(1,892)
Restricted Stock (c)6,860 7,332 6,520 
Pre-tax stock-based compensation expense$7,110 $7,559 $4,628 
Income tax benefit$636 $882 $167 
(a)Amounts shown are net of an immaterial amount capitalized to development projects in 2022, $0.1 million capitalized to development projects in 2021 and $0.2 million capitalized to development projects in 2020.
(b)The credit position for the year ended December 31, 2020, was due to significant forfeitures which exceeded the expense.
(c)Amounts shown are net of $4.8 million capitalized to development projects in 2022, $2.2 million capitalized to development projects in 2021 and $0.9 million capitalized to development projects in 2020.

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Stock Options The following table summarizes stock option activity:
 Stock OptionsWeighted-average Exercise PriceWeighted-average Remaining Contractual Term (years)Aggregate Intrinsic Value
Stock options outstanding at December 31, 2021270,487 $112.61 
Granted13,000 $65.99 
Exercised (a)(4,500)68.61 
Forfeited(11,900)126.67 
Expired(8,100)118.70 
Stock options outstanding at December 31, 2022258,987 $110.20 4.2$240,858 
Stock options vested and expected to vest at December 31, 2022257,062 $110.45 4.2$231,823 
Stock options exercisable at December 31, 2022179,150 $118.90 2.8$— 
(a)The total intrinsic value of stock options exercised was $0.1 million during 2022, $2.6 million during 2021, and $2.4 million during 2020, based on the difference between the market price at the exercise date and the exercise price.

Cash received from stock option exercises was $0.3 million in 2022, $4.1 million in 2021, and $4.6 million in 2020. The tax benefit from these exercises was immaterial.

The fair value of stock option awards is determined using the Black-Scholes option-pricing model with the following assumptions:
–Expected life—Based on the average of the time to vesting and full term of an option
–Risk-free interest rates—Based on the U.S. Treasury rate over the expected life of an option
–Expected volatility—Based on the average of implied and historical volatilities as of each of the grant dates

The fair value on the grant date and the significant assumptions used in the Black‑Scholes option‑pricing model are as follows:
 202220212020
Weighted-average grant date fair value$37.70 $41.52 $32.10 
Assumptions
Expected life of options (in years)7.57.57.5
Risk-free interest rate3.4 %1.2 %0.7 %
Expected volatility50.3 %36.5 %40.4 %
Expected annual dividend per share— — — 

Generally, options granted vest over requisite service periods, expire ten years after the grant date and generally do not become exercisable until their restrictions on exercise lapse after the five-year anniversary of the grant date.

The balance of unamortized stock option expense as of December 31, 2022, is $1.4 million, which is expected to be recognized over a weighted‑average period of 3.3 years.

Restricted Stock Restricted stock awards issued under the 2020 Equity Plan provide that shares awarded may not be sold or otherwise transferred until restrictions have lapsed as established by the Committee. In addition to the granting of restricted stock to certain members of management, the Company awards restricted stock to non‑employee directors as part of their annual retainer. The management awards generally vest over a range of three to five years, and the restriction on the non‑employee director shares generally lapses on the date of the Company’s following annual meeting of shareholders, or June 1st of the year following the award year, whichever is earlier, in each case generally subject to continued service.

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The following table summarizes restricted stock activity:
 Restricted StockWeighted-average Grant Date Fair Value
Restricted stock outstanding at December 31, 2021405,966$72.20 
Granted154,59988.19 
Vested(101,000)103.48 
Forfeited(106,102)55.96 
Restricted stock outstanding at December 31, 2022353,463$75.14 

The grant date fair value of restricted stock is based on the closing sales price of common stock on the grant date. For restricted stock awards that vest based on shareholder returns, the grant date fair values are calculated using a Monte-Carlo approach which simulates the Company’s stock price on the corresponding vesting dates and are reflected at the target level of performance in the table above.

The weighted-average grant-date fair value per share of restricted stock granted was $83.91 during 2021 and $71.48 during 2020. The fair value of restricted stock that vested was $8.0 million during 2022, $6.9 million during 2021, and $5.6 million during 2020, based on the market price at the vesting date.

The balance of unamortized restricted stock expense as of December 31, 2022, was $16.2 million, which is expected to be recognized over a weighted‑average period of 2.2 years.

12. Income Taxes

Deferred income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax basis of assets and liabilities using enacted tax rates currently in effect. Deferred income taxes also reflect the impact of operating loss and tax credit carryforwards.


The following summarizes income tax expense (benefit) for the years ended December 31:
thousands202220212020
Current$18,478 $4,797 $826 
Deferred42,022 10,356 10,827 
Total$60,500 $15,153 $11,653 

Reconciliation of the Income tax expense (benefit) if computed at the U.S. federal statutory income tax rate to the Company’s reported Income tax expense (benefit) for the years ended December 31 is as follows:
thousands except percentages202220212020
Income (loss) before income taxes$245,136 $64,077 $8,480 
U.S. federal statutory tax rate21.0 %21.0 %21.0 %
Tax computed at the U.S. federal statutory rate$51,479 $13,456 $1,781 
Increase (decrease) in valuation allowance, net1,065 2,378 11,822 
State income tax expense (benefit), net of federal income tax5,483 (3,182)(2,608)
Tax expense (benefit) from other change in rates, prior period adjustments and other permanent differences315 (181)2,271 
Tax expense on compensation disallowance2,180 1,570 1,553 
Net (income) loss attributable to noncontrolling interests (a)(22)1,507 (4,826)
Tax expense (benefit) on tax credits— (395)1,660 
Income tax expense (benefit)$60,500 $15,153 $11,653 
Effective tax rate24.7 %23.6 %137.4 %
(a)The Company deconsolidated 110 North Wacker in the third quarter of 2020. Refer to Note 2 - Investments in Unconsolidated Ventures for additional information.

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As of December 31, 2022, the amounts and expiration dates of operating loss carryforwards for tax purposes are as follows:
thousandsAmount
Net operating loss carryforwards - Federal (a)$132,736 
Net operating loss carryforwards - State (b)606,681 
(a)Federal net operating loss carryforwards have an indefinite carryforward period.
(b)State net operating loss carryforwards of $279.5 million have an indefinite carryforward period. The remaining $327.2 million of carryforwards have varying carryforward periods through 2042. A valuation allowance is provided if we believe it is more likely than not that all or some portion ofhas been recorded against the deferred tax asset will not be realized. An increase or decrease in the valuation allowance that results frombenefit related to a change in circumstances, and which causes a change in our judgment about the realizabilitymajority of the related deferredstate net operating loss carryforwards.

The following summarizes tax asset, iseffects of temporary differences and carryforwards included in the net deferred tax provision. There are events or circumstancesliabilities as of December 31:
thousands20222021
Deferred tax assets:
Operating and Strategic Developments properties, primarily differences in basis of assets and liabilities$24,141 $— 
Operating loss and tax carryforwards65,829 119,884 
Total deferred tax assets89,970 119,884 
Valuation allowance(39,478)(40,477)
Total net deferred tax assets$50,492 $79,407 
Deferred tax liabilities:
Property associated with MPCs, primarily differences in the tax basis of land assets and treatment of interest and other costs$(214,045)$(176,904)
Operating and Strategic Developments properties, primarily differences in basis of assets and liabilities— (27,364)
Deferred income(90,783)(79,976)
Total deferred tax liabilities(304,828)(284,244)
Total net deferred tax liabilities$(254,336)$(204,837)

The deferred tax liability associated with the Company’s MPCs is largely attributable to the difference between the basis and value determined as of the date of the acquisition by its predecessors adjusted for sales that could occurhave occurred since that time. The recognition of these deferred tax liabilities is dependent upon the timing and sales price of future land sales and the method of accounting used for income tax purposes. The deferred tax liability related to deferred income represents the difference between the income tax method of accounting and the financial statement method of accounting for prior sales of land in the futureCompany’s MPCs.

Generally, the Company is currently open to audit under the statute of limitations by the Internal Revenue Service as well as state taxing authorities for the years ended December 31, 2019 through 2022. In the Company’s opinion, it has made adequate tax provisions for years subject to examination. However, the final determination of tax examinations and any related litigation could be different from what was reported on the returns.

The Company applies the generally accepted accounting principle related to accounting for uncertainty in income taxes, which prescribes a recognition threshold that could limita tax position is required to meet before recognition in the benefit of deferred tax assets. In addition, we recognizefinancial statements and reportprovides guidance on derecognition, measurement, classification, interest and penalties, if necessary,accounting in interim periods, disclosure and transition issues.

The Company recognizes and reports interest and penalties related to uncertainunrecognized tax positionsbenefits, if applicable, within ourthe provision for income tax expense.

In our MPCs, gains The Company had no unrecognized tax benefits for the years ended December 31, 2022, 2021 or 2020, and therefore did not recognize any interest expense or penalties on unrecognized tax benefits.


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13. Warrants

On October 7, 2016, the Company entered into a warrant agreement with respectDavid R. O’Reilly, (O’Reilly Warrant) prior to land sales, whetherhis appointment to his previous position of Chief Financial Officer. Upon exercise of the warrant, Mr. O’Reilly could acquire 50,125 shares of common stock at an exercise price of $112.08 per share. The O’Reilly Warrant was issued at fair value in exchange for commercial use ora $1.0 million payment in cash from Mr. O’Reilly. The O’Reilly Warrant became exercisable on April 6, 2022, and expired on October 2, 2022, without being exercised.

On June 16, 2017, and October 4, 2017, the Company entered into warrant agreements with its Chief Executive Officer, David R. Weinreb, (Weinreb Warrant) and President, Grant Herlitz, (Herlitz Warrant) to acquire 1,965,409 shares and 87,951 shares of common stock for single family residences, are reported for tax purposes either on the modified accrual method or on the percentage-of-completion method. Under the percentage-of-completion method, a gain is recognized for tax purposes as costs are incurred in satisfactionpurchase price of contractual obligations. The method used for determining the percentage complete for income tax purposes is different than that used for financial statement purposes.

Deferred Expenses, net

Deferred expenses consist principally of leasing costs. Deferred leasing costs are amortized to amortization expense using the straight‑line method over periods that approximate the related lease terms. Deferred expenses are shown net of accumulated amortization of $18.9$50.0 million and $14.1$2.0 million, respectively. The Weinreb Warrant would have become exercisable on June 15, 2022, at an exercise price of $124.64 per share, and the Herlitz Warrant would have become exercisable on October 3, 2022, at an exercise price of $117.01 per share, subject in each case to earlier exercise upon certain change in control, separation and termination provisions. The Weinreb Warrant expires June 15, 2023, and the Herlitz Warrant expires October 3, 2023.The purchase prices paid by the respective executives for the O’Reilly Warrant, the Weinreb Warrant and the Herlitz Warrant, which qualify as equity instruments, were credited to Additional paid-in capital. 


On October 21, 2019, Mr. Weinreb and Mr. Herlitz stepped down from their roles as Chief Executive Officer and President of the Company, respectively. The Company and each of Mr. Weinreb and Mr. Herlitz have agreed to treat their terminations of employment as terminations without cause under their respective employment and warrant agreements with the Company. Thus, effective October 21, 2019, the Weinreb Warrant and Herlitz Warrant became exercisable by the terms of their respective warrant agreements in connection with their respective terminations of employment. The warrant expiration dates remain unchanged. Neither of these warrants have been exercised as of December 31, 20172022.

14. Accumulated Other Comprehensive Income (Loss)

The following tables summarizechanges in AOCI by component, all of which are presented net of tax:
thousands
Balance as of December 31, 2019$(29,372)
Other comprehensive income (loss) before reclassifications(34,906)
(Gain) loss reclassified from accumulated other comprehensive loss to net income11,836 
Pension adjustment(84)
Share of investee’s other comprehensive income1,002 
Deconsolidation of 110 North Wacker12,934 
Net current-period other comprehensive income (loss)(9,218)
Balance at December 31, 2020$(38,590)
Other comprehensive income (loss) before reclassifications5,300 
(Gain) loss reclassified from accumulated other comprehensive loss to net income12,660 
Pension adjustment452 
Share of investee's other comprehensive income5,721 
Net current-period other comprehensive income (loss)24,133 
Balance at December 31, 2021$(14,457)
Other comprehensive income (loss) before reclassifications25,657 
(Gain) loss reclassified from accumulated other comprehensive loss to net income6,041 
Pension adjustment(183)
Reclassification of the Company's share of previously deferred derivative gains to net income (a)(6,723)
Net current-period other comprehensive income (loss)24,792 
Balance at December 31, 2022$10,335 
(a)In March 2022, the Company completed the sale of its ownership interest in 110 North Wacker and 2016, respectively.

Deferred financing fees are amortizedreleased a net of $6.7 million from Accumulated other comprehensive income (loss), representing the Company’s $8.6 million share of previously deferred gains associated with the Venture’s derivative instruments net of tax expense of $1.9 million. See Note 2 - Investments in Unconsolidated Ventures for additional information.

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The following table summarizes the amounts reclassified out of AOCI:
Accumulated Other Comprehensive Income 
(Loss) Components
thousands
Amounts reclassified from 
Accumulated other comprehensive income (loss)
For the Year EndedAffected line items in the Statements of Operations
20222021
(Gains) losses on cash flow hedges$7,778 $16,221 Interest expense
Company's share of previously deferred derivative gains(8,636)— Equity in earnings (losses) from unconsolidated ventures
Income taxes on (gains) losses on cash flow hedges176 (3,561)Income tax expense (benefit)
Total reclassifications of (income) loss for the period$(682)$12,660 

15. Earnings Per Share

Basic earnings (loss) per share (EPS) is computed by dividing net income (loss) available to interest expense overcommon stockholders by the termsweighted‑average number of common shares outstanding. Diluted EPS is computed after adjusting the numerator and denominator of the respective financing agreementsbasic EPS computation for the effects of all potentially dilutive common shares. The dilutive effect of options and non-vested stock issued under stock‑based compensation plans is computed using the effective interest method (or other methodstreasury stock method. The dilutive effect of the warrants is computed using the if-converted method.

Information related to the Company’s EPS calculations is summarized for the years ended December 31 as follows:
thousands except per share amounts202220212020
Net income (loss)
Net income (loss)$184,636 $48,924 $(3,173)
Net (income) loss attributable to noncontrolling interests(103)7,176 (22,981)
Net income (loss) attributable to common stockholders$184,533 $56,100 $(26,154)
Shares
Weighted-average common shares outstanding - basic50,513 54,596 52,522 
Restricted stock and stock options45 53 — 
Weighted-average common shares outstanding - diluted50,558 54,649 52,522 
Net income (loss) per common share
Basic income (loss) per share$3.65 $1.03 $(0.50)
Diluted income (loss) per share$3.65 $1.03 $(0.50)

The diluted EPS computation excludes 253,987 shares of stock options as of December 31, 2022, 255,987 shares as of December 31, 2021, and 372,736 shares as of December 31, 2020, because their effect is anti-dilutive. The diluted EPS computation also excludes 277,295 shares of restricted stock as of December 31, 2022, 299,506 shares as of December 31, 2021, and 409,110 shares as of December 31, 2020, because their effect is anti-dilutive.

Common Stock Repurchases In October 2021, the Company’s board of directors (Board) authorized a share repurchase program, pursuant to which approximate the effective interest method).

Revenue Recognition and Related Matters

Condominium Rights and Unit Sales

Revenue recognitionCompany was authorized to purchase up to $250.0 million of its common stock through open-market transactions. During the fourth quarter of 2021, the Company repurchased 1,023,284 shares of its common stock, par value $0.01 per share, for contracted individual units in a condominium project are accounted$96.6 million, or approximately $94.42 per share. During the first quarter of 2022, the Company repurchased an additional 1,579,646 shares of its common stock, for $153.4 million, or approximately $97.10 per share, thereby completing all authorized purchases under the percentageOctober 2021 plan.


In March 2022, the Board authorized an additional share repurchase program, pursuant to which the Company may, from time to time, purchase up to $250.0 million of completion methodits common stock through open-market transactions. The date and time of such repurchases will depend upon market conditions and the program may be suspended or discontinued at any time. During 2022, the Company repurchased 2,704,228 shares of its common stock under this program for approximately $235.0 million at an average price of $86.90 per share. All purchases were funded with cash on hand.

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16. Revenues

Revenues from contracts with customers (excluding lease-related revenues) are recognized when control of the following criteriapromised goods or services is transferred to the Company’s customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Revenue and cost of sales for condominium units sold are met: (a)not recognized until the construction is beyond a preliminary stage; (b)complete, the sale closes and the title to the property has transferred to the buyer is unable to require a refund of its deposit, except for non‑delivery of the unit; (c) sufficient units are sold to assure that it will not revert to a rental property; (d) sales prices are collectible; and (e) aggregate sales proceeds and costs can be reasonably estimated. Those units that do not meet the criteria use the full accrual method or deposit method which defers revenue recognition until the unit is closed. Revenue related to condominium sales will change when the new revenue recognition standard is adopted. See Recently Issued Accounting Pronouncements below. 

Revenue recognized on the percentage-of-completion method is based upon the ratio of project costs incurred to date compared to total estimated project cost. Total estimated project costs include direct(point in time). Additionally, certain real estate selling costs, such as the carryingcosts related to the Company’s condominium model units, are either expensed immediately or capitalized as property and equipment and depreciated over their estimated useful life.


The following presents the Company’s revenues disaggregated by revenue source for the years ended December 31:
thousands202220212020
Revenues from contracts with customers
Recognized at a point in time
Condominium rights and unit sales$677,078 $514,597 $1,143 
Master Planned Communities land sales316,065 346,217 233,044 
Builder price participation71,761 45,138 37,072 
Total1,064,904 905,952 271,259 
Recognized at a point in time or over time
Other land, rental and property revenues144,481 152,619 105,048 
Rental and lease-related revenues
Rental revenue399,103 369,330 323,182 
Total revenues$1,608,488 $1,427,901 $699,489 
Revenues by segment
Operating Assets revenues$431,834 $442,698 $372,057 
Master Planned Communities revenues408,365 409,746 283,953 
Seaport revenues88,468 55,008 23,814 
Strategic Developments revenues679,763 520,109 19,407 
Corporate revenues58 340 258 
Total revenues$1,608,488 $1,427,901 $699,489 

Contract Assets and Liabilities Contract assets are the Company’s right to consideration in exchange for goods or services that have been transferred to a customer, excluding any amounts presented as a receivable. Contract liabilities are the Company’s obligation to transfer goods or services to a customer for which the Company has received consideration.

There were no contract assets for the periods presented. The contract liabilities primarily relate to escrowed condominium deposits, MPC land sales deposits and deferred MPC land sales related to unsatisfied land improvements. The beginning and ending balances of contract liabilities and significant activity during the periods presented are as follows:
thousandsContract Liabilities
Balance as of December 31, 2020$360,416 
Consideration earned during the period(584,115)
Consideration received during the period654,876 
Balance as of December 31, 2021$431,177 
Consideration earned during the period(799,401)
Consideration received during the period826,055 
Balance as of December 31, 2022$457,831 

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Remaining Unsatisfied Performance Obligations The Company’s remaining unsatisfied performance obligations represent a measure of the total dollar value of ourwork to be performed on contracts executed and in progress. These performance obligations primarily relate to the completion of condominium construction and transfer of control to a buyer, as well as the completion of contracted MPC land site planning, architectural, construction costs, financing costssales and indirectrelated land improvements. These obligations are associated with contracts that generally are non-cancelable by the customer after 30 days; however, purchasers of condominium units have the right to cancel the contract should the Company elect not to construct the condominium unit within a certain period of time or materially change the design of the condominium unit. The aggregate amount of the transaction price allocated to the Company’s remaining unsatisfied performance obligations as of December 31, 2022, is $2.5 billion. The Company expects to recognize this amount as revenue over the following periods:
thousandsLess than 1 year1-2 years3 years and thereafter
Total remaining unsatisfied performance obligations$82,078 $788,845 $1,650,684 

The Company’s remaining performance obligations are adjusted to reflect any known project cancellations, revisions to project scope and cost, allocationsand deferrals, as appropriate. These amounts exclude estimated amounts of variable consideration which are constrained, such as builder price participation.

17. Leases

Lessee ArrangementsThe Company determines whether an arrangement is a lease at inception. Operating leases are included in Operating lease right-of-use assets, net and Operating lease obligations on the Consolidated Balance Sheets. Right-of-use assets represent the Company’s right to use an underlying asset for certain infrastructurethe lease term and amenity costs which benefitlease liabilities represent the projectCompany’s obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at commencement date based uponon the relative salespresent value of future minimum lease payments over the units. Changeslease term. As most of the Company’s leases do not provide an implicit rate, the Company uses an estimate of the incremental borrowing rate based on the information available at the lease commencement date in estimated projectdetermining the present value of future lease payments. The Operating lease right-of-use asset also includes any lease payments made, less any lease incentives and initial direct costs impactincurred. The Company does not have any finance leases as of December 31, 2022, or December 31, 2021.

The Company’s lessee agreements consist of operating leases primarily for ground leases and other real estate. The majority of the

F-14

Table Company’s leases have remaining lease terms of Contents

THE HOWARD HUGHES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

amountless than one year to approximately 50 years, excluding extension options. The Company considers its strategic plan and the life of revenue and profit recognizedassociated agreements in determining when options to extend or terminate lease terms are reasonably certain of being exercised. Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. Certain of the Company’s lease agreements include variable lease payments based on a percentage of completion basis duringincome generated through subleases, changes in price indices and market rates, and other costs arising from operating, maintenance, and taxes. The Company’s lease agreements do not contain residual value guarantees or restrictive covenants. The Company leases certain buildings and office space constructed on its ground leases to third parties.


In June 2022, the periodCompany sold the Outlet Collection at Riverwalk, which was subject to a ground lease, resulting in which theya reduction in the Company’s operating lease right-of-use assets and obligations as well as future minimum lease payments. As of December 31, 2022, the Company’s operating leases primarily relate to properties in the Seaport.

The Company’s leased assets and liabilities are determined. Revenue recognized in excessas follows:
thousands20222021
Assets
Operating lease right-of-use assets, net$46,926 $57,022 
Liabilities
Operating lease obligations$51,321 $69,363 

The components of amounts collected from buyers is classifiedlease expense for the years ended December 31 are as Condominium receivables and amounts collected from buyers in excessfollows:
thousands20222021
Operating lease cost$7,449 $8,495 
Variable lease costs904 823 
Total lease cost$8,353 $9,318 
HHC 2022 FORM 10-K | 107
FINANCIAL STATEMENTS
FOOTNOTES
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Index to Financial Statements
Future minimum lease payments as of revenue recognized to dateDecember 31, 2022, are classified as Condominium deposits liability.

Master Planned Community Land Sales

Revenues from land sales are recognized using the full accrual method at closing, when title has passedfollows:

thousandsOperating Leases
2023$4,834 
20244,878 
20253,493 
20263,269 
20273,336 
Thereafter241,294 
Total lease payments261,104 
Less: imputed interest(209,783)
Present value of lease liabilities$51,321 

Other information related to the buyer, adequate consideration forCompany’s lessee agreements is as follows:
Supplemental Consolidated Statements of Cash Flows InformationYear ended December 31,
thousands20222021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows on operating leases$5,718 $6,930 
Other Information20222021
Weighted-average remaining lease term (years)
Operating leases43.838.7
Weighted-average discount rate
Operating leases7.7 %7.7 %
Lessor ArrangementsThe Company receives rental income from the land has been receivedleasing of retail, office, multi-family and weother space under operating leases, as well as certain variable tenant recoveries. Such operating leases are with a variety of tenants and have no continuing involvement witha remaining average term of approximately five years. Lease terms generally vary among tenants and may include early termination options, extension options and fixed rental rate increases or rental rate increases based on an index. The minimum rentals based on operating leases of the property. Revenue that is not recognized under the full accrual method is deferred and recognized when the required obligationsconsolidated properties held as of December 31, 2022, are met.

When developed residential or commercial land is sold, the cost of sales includes actual costs incurred and estimates ofas follows:

Year ended December 31,
thousands20222021
Total minimum rent payments$229,302 $223,138 

Total future development costs benefiting the property sold through completion. In accordance with ASC 970, when developed land is sold, costs are allocated to each sold superpad or lot based upon the relative sales value of each superpad or lot. For purposes of allocating development costs, estimates of future revenues and development costs are re-evaluated throughout the year, with adjustments being allocated prospectively to the remaining parcels available for sale. For certain parcels of land, however, the specific identification method is used to determine the cost of sales, including acquired parcels that we do not intend to develop or for which development was complete at the date of acquisition.

Minimum Rents and Tenant Recoveries

Revenueminimum rents associated with our operating assets includes minimum rent, percentage rent in lieu of fixed minimum rent, tenant recoveries and overage rent.

leases are as follows:

thousandsTotal Minimum Rent
2023$236,188 
2024239,414 
2025218,399 
2026198,114 
2027185,526 
Thereafter802,060 
Total$1,879,701 

Minimum rent revenues are recognized on a straight‑line basis over the terms of the related leases when collectability is reasonably assured and the tenant has taken possession of, or controls, the physical use of the leased asset. Percentage rent in lieu of fixed minimum rent is recognized as sales are reported from tenants. Minimum rent revenues reported on the Consolidated Statements of Operations also include amortization related to above and below‑market tenant leases on acquired properties.

Recoveries from tenants are stipulated in the leases, are generally computed based upon a formula related to real estate taxes, insurance and other real estate operating expenses, and are generally recognized as revenues in the period the related costs are incurred.

Overage rent is recognized on an accrual basis once tenant sales exceed contractual thresholds contained in the lease and is calculated by multiplying the tenant sales in excess of the minimum amount by a percentage defined in the lease.

If the lease provides for tenant improvements, we determine whether the tenant improvements are owned by the tenant or by us. When we are the owner of the tenant improvements, rental revenue begins when the improvements are substantially complete. When the tenant is the owner of the tenant improvements, any tenant allowance funded by us is treated as a lease incentive and amortized as an adjustment to rental revenue over the lease term.

Hospitality Revenues

Revenue from our hospitality properties is primarily related to room rentals and food and beverage sales and is recognized as services are performed.

Builder Price Participation

Builder price participation revenue is based on an agreed-upon percentage of the sales price of homes closed in excess of contractual amounts established when the homebuilder buys lots from us. Revenue related to builder price participation rights is recognized as the underlying homes are sold by homebuilders and fluctuates based upon the number of homes closed that qualify for builder price participation payments.

Other land revenues

Other land revenues is primarily related to easement revenue, ground maintenance revenue and advertising revenue and is recognized as services are performed.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Other rental and property revenues

Other rental and property revenues is primarily related to baseball revenue, other tenant revenue and overage rent revenue and is recognized as services are performed.

Marketing and advertising

Our Strategic Development, Operating Assets and MPC segments incur various marketing and advertising costs as part of their development, branding, leasing or sales initiatives. These costs include special events, broadcasts, direct mail and online digital and social media programs, and they are expensed as incurred.

Fair Value of Financial Instruments

The carrying values of cash and cash equivalents, marketable securities, escrows, receivables, accounts payable, accrued expenses and other assets and liabilities are reasonable estimates of their fair values because of the short maturities of these instruments.

Derivative Instruments and Hedging Activities

Derivative instruments and hedging activities require management to make judgments on the nature of its derivatives and their effectiveness as hedges. These judgments determine if the changes in fair value of the derivative instruments are reported in the Consolidated Statements of Operations as a component of net income or as a component of comprehensive income and as a component of equity on the Consolidated Balance Sheets. While management believes its judgments are reasonable, a change in a derivative’s effectiveness as a hedge could materially affect expenses, net income and equity. The Company accounts for the effective portion of changes in the fair value of a derivative in other comprehensive income (loss) and subsequently reclassifies the effective portion to earnings over the term that the hedged transaction affects earnings. The Company accounts for the ineffective portion of changes in the fair value of a derivative directly in earnings. 

Stock-Based Compensation

At December 31, 2017, the Company has a stock-based employee compensation plan. We apply the provisions of ASC 718 Stock Compensation (“ASC 718”) which requires all share‑based payments to employees, including grants of employee stock options, to be recognized in the Consolidated Statements of Operations based on their fair values. All unvested options outstanding under our option plans have grant prices equal to the market price of the Company’s stock on the dates of grant. Compensation cost for restricted stock is determined based on fair market value of the Company’s stock at the date of grant.

Recently Issued Accounting Pronouncements

The following is a summary of recently issued and other notable accounting pronouncements which relate to our business.

In August 2017, the Financial Accounting Standards Board’s (“FASB”) issued Accounting Standards Update (“ASU”) 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities to enable entities to better portray the economic results of their risk management activities in their financial statements. The ASU expands an entity’s ability to hedge nonfinancial and financial risk components and reduce complexity in fair value hedges of interest rate risk and eases certain documentation and assessment requirements and modifies the accounting for components excluded from the assessment of hedge effectiveness. The ASU also eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same Consolidated Statements of Operations line as the hedged item. The effective date of the standard is for fiscal periods, and interim periods within those years, beginning after December 15, 2018. The new standard must be adopted using a modified retrospective approach with early adoption permitted. We are currently evaluating the potential impact of this ASU on our consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting to provide clarity and reduce the diversity in practice and cost and complexity when applying the guidance in Topic 718, Compensation–Stock Compensation. Stakeholders observed that the definition of the term “modification” is broad and

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

that its interpretation results in diversity in practice. The ASU states that when an entity concludes that a change is not substantive, then modification accounting does not apply. The effective date of the standard is for fiscal periods, and interim periods within those years, beginning after December 15, 2017. The new standard must be adopted prospectively to an award modified on or after the adoption date. Early adoption is permitted. Once adopted, HHC will apply this guidance to any modifications made to either the stock option or restricted stock award plans. 

In February 2017, the FASB issued ASU 2017-05, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20). The standard defines an “in-substance non-financial asset” as a financial asset promised to a counterparty in a contract if substantially all the fair value of the assets is concentrated in nonfinancial assets. The ASU also provides guidance for accounting for partial sales of non-financial assets such as real estate. The effective date of the standard is for fiscal periods, and interim periods within those years, beginning after December 15, 2017. The new standard must be adopted retrospectively with early adoption permitted. We are currently evaluating the potential impact of this ASU on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350). This standard is intended to simplify the subsequent measurement of goodwill by eliminating step two from the goodwill impairment test. Instead, an entity will perform only step one of its quantitative goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and then recognizing the impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. An entity will still have the option to perform a qualitative assessment for a reporting unit to determine if the quantitative step one impairment test is necessary. The effective date of the standard is for fiscal periods, and interim periods within those years, beginning after December 15, 2019. The new standard must be adopted prospectively with early adoption permitted. We do not expect the adoption of this ASU to have a material impact on our consolidated financial statements.

In January 2017, the FASB formally issued, and we early adopted ASU 2017-01, Business Combinations (Topic 805), Clarifying the Definition of a Business, as permitted, on a prospective basis. The standard provides criteria to determine when an integrated set of assets and activities is not a business. The criteria requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not a business. However, to be considered a business, the set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output. Under the new guidance, the acquisition of a property with an in-place lease generally will no longer be accounted for as an acquisition of a business, but instead as an asset acquisition, meaning the transaction costs of such an acquisition will now be capitalized instead of expensed. Our adoption did not have a material impact on our accounting for acquisitions.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows – Restricted Cash, which requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. The effective date of the standard is for fiscal periods, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period, but any adjustments must be reflected as of the beginning of the fiscal year that includes that interim period. The new standard must be adopted retrospectively. ASU 2016-18 will impact our presentation of operating, investing and financing activities related to restricted cash on our consolidated statements of cash flows. 

In October 2016, the FASB issued ASU 2016-17, Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control. The standard requires reporting entities to evaluate whether they should consolidate a variable interest entity (“VIE”) in certain situations involving entities under common control. Specifically, the standard changes the evaluation of whether a reporting entity is the primary beneficiary of a VIE by changing how a reporting entity that is a single decision maker of a VIE treats indirect interests in the entity held through related parties that are under common control with the reporting entity. The new standard was effective January 1, 2017, and must be adopted retrospectively. We currently have no VIEs involving entities under common control, and accordingly, adoption of this ASU had no impact on our consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments. The standard addresses how certain cash receipts and payments are presented and classified in the statement of cash flows, including debt extinguishment costs, distributions from equity method investees and contingent consideration payments made after a business combination. The effective date of this standard is for fiscal years, and interim periods within those years, beginning after

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 15, 2017, with early adoption permitted. The new standard must be adopted retrospectively. ASU 2016-15 will impact our presentation of operating, investing and financing activities related to certain cash receipts and payments on our consolidated statements of cash flows.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses. The standard modifies the impairment model for most financial assets, including trade accounts receivables and loans, and will require the use of an “expected loss” model for instruments measured at amortized cost. Under this model, entities will be required to estimate the lifetime expected credit loss on such instruments and record an allowance to offset the amortized cost basis of the financial asset, resulting in a net presentation of the amount expected to be collected on the financial asset. The effective date of the standard is for fiscal years, and for interim periods within those years, beginning after December 15, 2019, with early adoption permitted. We are currently evaluating the adoption of ASU 2016-13 on our consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment Accounting. The standard amends several aspects of accounting for share-based payment transactions, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. We adopted the ASU as of January 1, 2017, and it did not have a material impact on our accounting for excess tax benefits and tax deficiencies as our stock compensation plans, which permit net-share settlement, had minimal vesting and exercise activity prior to January 1, 2017. The new guidance requires entities to recognize all income tax effects of awards in the Consolidated Statements of Operations when the awards vest or are settled, in contrast to prior guidance wherein such effects are recorded in additional paid-in capital (“APIC”). The amounts recorded in APIC prior to our adoption remain in APIC per the new standard. The new standard also allows an employer to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting and to make a policy election to account for forfeitures as they occur. Our plans allow us, at the employee’s request, to withhold shares with a fair value up to the amount of tax owed using the maximum statutory tax rate for the employee’s applicable jurisdiction. We elected to continue to estimate forfeitures as allowed by an election under the new guidance. Our consolidated statements of cash flows for the year ended December 31, 2017, 2016 and 2015 present excess tax benefits as an operating activity and employee taxes paid as a financing activity as required by ASU 2016-09.

In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 is codified in Accounting Standards Codification (“ASC”) 842. The standard amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. The effective date of this standard is for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. The standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application. We are currently evaluating the impact of adopting ASU 2016-02 on our consolidated financial statements. We anticipate a material increase to our assets and liabilities as we will be required to capitalize our ground leases, office leases and certain office equipment where we are the lessee. We will also be considering certain services that are considered non-lease components such as common area maintenance under the new guidance. Upon adoption of ASC 842, these services will be accounted for under ASU 2014-09, Revenues from Contracts with Customers (Topic 606), which is further discussed below.

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities which will require entities to recognize changes in equity investments with readily determinable fair values in net income. For equity investments without readily determinable fair values, the ASU permits the application of a measurement alternative using the cost of the investment, less any impairments, plus or minus changes resulting from observable price changes for an identical or similar investment of the same issuer. The effective date of the standard is for fiscal periods, and interim periods within those years, beginning after December 15, 2017, and must be adopted via a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. As all our equity investments do not have readily determinable fair values, the adoption of this ASU is not expected to have an impact on our consolidated financial statements.

In May 2014, the FASB and International Accounting Standards Board issued ASU 2014-09. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The ASU requires companies to identify performance obligations in the contract, estimate the amount of variable consideration to include in the transaction price and allocate the transaction price to each separate performance obligation. The effective date of this standard is for fiscal years, and interim periods within those years, beginning after December 15, 2017, with early adoption permitted. We have

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concluded that after adoption we will no longer be able to recognize revenue for condominium projects on a percentage of completion basis. Adoption of the ASU will also impact the timing of recognition and classification of certain real estate selling costs, such as the costs related to our condominium model units. Currently, these selling costs are capitalized as real estate project costs and recognized as costs of sales on a percentage of completion basis in our consolidated financial statements. Under the new guidance, some of these costs may need to be expensed immediately or will be capitalized as property and equipment and depreciated over their estimated useful life. Entities have the option of using either a full retrospective or a modified retrospective approach. We have elected to apply a modified retrospective approach of adoption. Upon adoption of this ASU on January 1, 2018, since buyers are not required to pay us for performance under the sales contracts as the condominiums are constructed, revenue and cost of sales for condominium units sold will no longer be recognized until the construction is complete, the sale closes, and the title to the property has transferred to the buyer. Therefore, on the adoption date of this new standard, we will report an adjustment to reduce retained earnings by an estimated $70.0 - $90.0 million for amounts previously recognized in earnings on a percentage of completion basis for those sale contracts existing at December 31, 2017. This same amount will be reported in future periods when the sales close and title transfers to the buyer.

NOTE 2  EARNINGS PER SHARE

Basic earnings (loss) per share (“EPS”) is computed by dividing net income (loss) available to common stockholders by the weighted‑average number of common shares outstanding. Diluted EPS is computed after adjusting the numerator and denominator of the basic EPS computation for the effects of all potentially dilutive common shares. The dilutive effect of options and nonvested stock issued under stock‑based compensation plans is computed using the treasury stock method. The dilutive effect of the Sponsor Warrants and Management Warrants is computed using the if‑converted method. Gains associated with the changes in the fair value of the Sponsor Warrants and Management Warrants are excluded from the numerator in computing diluted earnings per share because inclusion of such gains in the computation would be anti‑dilutive.

Information related to our EPS calculations is summarized as follows:

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31, 

(In thousands, except per share amounts)

  

2017

    

2016

    

2015

Basic EPS:

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

Net income

 

$

166,623

 

$

202,326

 

$

126,719

Net income attributable to noncontrolling interests

 

 

1,781

 

 

(23)

 

 

 —

Net income attributable to common stockholders

 

$

168,404

 

$

202,303

 

$

126,719

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

Weighted average basic common shares outstanding

 

 

41,364

 

 

39,492

 

 

39,470

 

 

 

 

 

 

 

 

 

 

Diluted EPS:

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

Net income attributable to common stockholders

 

$

168,404

 

$

202,303

 

$

126,719

Less: Warrant liability gain

 

 

 —

 

 

 —

 

 

(58,320)

Adjusted net income attributable to common stockholders

 

$

168,404

 

$

202,303

 

$

68,399

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

Weighted average basic common shares outstanding

 

 

41,364

 

 

39,492

 

 

39,470

Restricted stock and stock options

 

 

279

 

 

343

 

 

411

Warrants

 

 

1,446

 

 

2,894

 

 

2,873

Weighted average diluted common shares outstanding

 

 

43,089

 

 

42,729

 

 

42,754

 

 

 

 

 

 

 

 

 

 

Basic income per share:

 

$

4.07

 

$

5.12

 

$

3.21

 

 

 

 

 

 

 

 

 

 

Diluted income per share:

 

$

3.91

 

$

4.73

 

$

1.60

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The diluted EPS computation as of December 31, 2017 excludes 313,500 stock options because their inclusion would have been anti-dilutive and 161,155 shares of restricted stock because market conditions have not been met.

The diluted EPS computation as of December 31, 2016 excludes 379,500 stock options because their inclusion would have been anti‑dilutive and 130,286 shares of restricted stock because market conditions have not been met.

The diluted EPS computation as of December 31, 2015 excludes 141,776 stock options because their inclusion would have been anti‑dilutive.

On February 23, 2018, we repurchased 475,920 of our shares of common stock in a private, unaffiliated transaction at an average purchase price of $120.33 per share for $57,267,454 in aggregate. The repurchase transaction was consummated on February 21, 2018, and was funded with cash on hand.

NOTE 3  WARRANT LIABILITIES

On November 9, 2010, we entered into warrant agreements with certain funds of Pershing Square Capital Management, L.P. (“Pershing Square”) to purchase 1,916,667 shares of our common stock at an exercise price of $50.00 per share (the “Sponsor Warrants”). Pershing Square exercised its Sponsor Warrants on June 30, 2017, resulting in a net issuance of 1,136,517 shares in accordance with the warrant provisions. In November 2010 and February 2011, we entered into certain warrant agreements (the “Management Warrants”) with David R. Weinreb, our Chief Executive Officer, Grant Herlitz, our President, and Andrew C. Richardson, our former Chief Financial Officer, in each case prior to his appointment to such position, to purchase 2,367,985,  315,731 and 178,971 shares, respectively, of our common stock. The Management Warrants were granted at fair value in exchange for a combined total of approximately $19.0 million in cash from such executives at the commencement of their respective employment. Mr. Weinreb and Mr. Herlitz’s warrants had an exercise price of $42.23 per share, and Mr. Richardson’s warrants had an exercise price of $54.50 per share.

Mr. Herlitz exercised his Management Warrants in early January 2017, resulting in the net issuance of 198,184 shares in accordance with the warrant provisions. Mr. Herlitz also donated 6,850 shares to a charitable trust, which were net share settled for 4,400 shares in accordance with the warrant provisions. In February, March and June 2017, Mr. Richardson exercised his Management Warrants, resulting in the net issuance of 98,549 shares in accordance with the warrant provisions. In June 2017, Mr. Weinreb exercised his Management Warrants, resulting in the net issuance of 1,614,803 shares in accordance with the warrant provisions.

As of December 31, 2017, all Sponsor Warrants and Management Warrants have been exercised. The fair values for the Sponsor Warrants and Management Warrants as of December 31, 2016 were recorded as liabilities in our Consolidated Balance Sheets because the holders of these warrants could require us to settle such warrants in cash upon a change of control. The estimated fair values for the outstanding Sponsor Warrants and Management Warrants totaled $332.2 million as of December 31, 2016. The fair values were estimated using an option pricing model and Level 3 inputs due to the unavailability of comparable market data, as further discussed in Note 7 –  Fair Value of Financial Instruments. Decreases and increases in the fair value of the Sponsor and Management Warrants prior to their settlements in 2017 were recognized as warrant liability gains or losses in the Consolidated Statements of Operations in the years ending December 31, 2017, 2016 and 2015.

On October 7, 2016, we entered into a warrant agreement with our new Chief Financial Officer, David R. O’Reilly, prior to his appointment to the position. Upon exercise of Mr. O’Reilly’s warrant, Mr. O’Reilly may acquire 50,125 shares of common stock at an exercise price of $112.08 per share. Mr. O’Reilly’s warrant was issued at fair value in exchange for a $1.0 million payment in cash from Mr. O’Reilly. The O’Reilly Warrant becomes exercisable on April 6, 2022, subject to earlier exercise upon certain change in control, separation and termination provisions. On June 16, 2017 and October 4, 2017, we also entered into new warrant agreements with Mr. Weinreb and Mr. Herlitz to acquire 1,965,409 shares and 87,951 shares of common stock for the purchase price of $50.0 million and $2.0 million, respectively. Mr. Weinreb’s new warrant becomes exercisable on June 15, 2022, at an exercise price of $124.64 per share, and Mr. Herlitz’s new warrant becomes exercisable on October 3, 2022, at an exercise price of $117.01 per share, subject to earlier exercise upon certain change in control, separation and termination provisions.The purchase prices paid by the respective executives for the O’Reilly Warrant and Mr. Weinreb’s and Mr. Herlitz’s new warrants, which qualify as equity instruments, are included within additional paid-in capital in the Consolidated Balance Sheets at December 31, 2017.

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NOTE 4  ACQUISITIONS AND DISPOSITIONS

In the third and fourth quarters of 2017, we closed on the sales of five of our non-core assets for total proceeds of $52.6 million, resulting in a net gain of $23.1 million, of which $19.2 million and $3.9 million are included in Gains on sales of properties and Gains on sales of operating properties, respectively, on our Consolidated Statements of Operations.

On December 28, 2017 (the “Constellation Acquisition Date”), we acquired our joint venture partner’s 50.0% interest in Constellation for $8.0 million in cash and 50% of the joint venture’s liabilities for a total of $16.0 million. Simultaneously with the buyout of this luxury apartment development, we replaced the joint venture’s existing $15.8 million construction loan with a $24.2 million mortgage at 4.07% maturing January 1, 2033. As a result of the change in control, we recognized a gain of $17.8 million in Gain on acquisition of joint venture partner's interest in conjunction with this acquisition relating to the step-up to fair value of the assets acquired.The following table summarizes the accounting of the purchase price:

 

 

 

 

Asset

    

Acquisition date fair value

Building

 

$

38,213

Land

 

 

3,069

Improvements

 

 

957

Furniture, fixtures and equipment

 

 

590

Leases in place

 

 

714

Other identifiable assets

 

 

18

Total

 

$

43,561

Prior to the acquisition, we accounted for our investment in Constellation under the equity method within Investment in Real Estate and Other Affiliates and recognized a loss of $0.3 million in equity in earnings for the year to date period through the Constellation Acquisition Date. Revenues and pre-tax net income from operations included in the Consolidated Statements of Operations from the Constellation Acquisition Date through December 31, 2017 are not material. 

On March 1, 2017 (the “Las Vegas 51s Acquisition Date”), we acquired our joint venture partner’s 50.0% interest in the Las Vegas 51s minor league baseball team for $16.4 million and became the sole owner of this Triple-A baseball team. As a result of the change in control, we recognized a gain of $5.4 million in Gain on acquisition of joint venture partner's interest in conjunction with this acquisition relating to the step-up to fair value of the assets acquired. Using the income approach, the allocated fair values included a $0.4 million contingent liability recorded in Accounts payable and accrued expenses per the terms of the purchase agreement relating to a credit for the use of seats in a future stadium for the team, if and when constructed by us, $7.9 million in finite-lived intangibles, which have a weighted average amortization period of 11 years, and $24.9 million to indefinite-lived intangibles, primarily related to the franchise relationship agreement, all of which is recorded in Prepaid expenses and other assets, net. Accordingly, the values of assets acquired and liabilities assumed and consolidated into our financial statements total $36.0 million and $3.2 million, respectively, and are included in our Operating Assets segment. Prior to the acquisition, we accounted for our investment in the Las Vegas 51s under the equity method within Investment in Real Estate and Other Affiliates. The joint venture had revenues of $1.3 million, and we recognized a net loss of $0.2 million included in equity in earnings for the year ended December 31, 2017. Included in the Consolidated Statements of Operations from the Las Vegas 51s Acquisition Date through December 31, 2017 are revenues of $6.8 million and a pre-tax net loss from operations of $0.6 million.

On January 18, 2017, we closed on a land sale of approximately 36 acres of our 100-acre property, Elk Grove Collection, for gross sales proceeds of $36.0 million, resulting in a pre-tax gain of $32.2 million. We plan to develop the remaining 64 acres. Commencement of construction is dependent on meeting internal pre-leasing and financing requirements for the project.

On January 6, 2017, we acquired the 11.4-acre Macy’s store and parking lot at Landmark Mall in Alexandria, VA, for $22.2 million. The Macy’s parcel is adjacent to the Landmark Mall, which is in our Strategic Developments segment, and is located approximately nine miles from Washington, D.C. We plan to redevelop the mall and the Macy’s parcel into an open-air, mixed-use community.

On December 29, 2016, we sold Park West, a non-core 249,177 square foot open-air shopping, dining and entertainment destination in Peoria, Arizona for net cash proceeds of $32.5 million, resulting in a loss of $1.1 million, net of transaction costs.

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THE HOWARD HUGHES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

This loss is in addition to an impairment charge recorded in the third quarter of 2016 to adjust the asset to fair value in anticipation of its sale (also see Note 6 – Impairment). As this asset was unleveraged, the sale allowed us to redeploy the net cash proceeds into acquisitions and other existing developments. 

On December 20, 2016, we acquired the American City Building, a 117,098 square foot building in Columbia, Maryland, for $13.5 million. We are in the process of formulating redevelopment plans for this property. 

On December 19, 2016, we acquired One Mall North, a 97,500 square foot, office building in Columbia, Maryland, for $22.2 million. The office building parcel and surface parking total 5.37 acres.

On July 20, 2016, we acquired our joint venture partner’s 18.57% interest in the 314-unit Millennium Six Pines Apartments for $4.0 million resulting in the dissolution of the joint venture and consolidation of the asset in our financial statements. Concurrently with the acquisition, we replaced the joint venture’s existing $37.7 million construction loan with a $42.5 million fixed rate loan at 3.39% maturing August 1, 2028. Total assets of $67.9 million and liabilities of $42.7 million, including the fixed rate loan noted above, were consolidated into our financial statements at fair value as of the acquisition date. In accordance with GAAP, we recognized a gain of $27.1 million in conjunction with this acquisition relating to the step-up to fair value of the assets acquired. Prior to the acquisition, we accounted for our investment in Millennium Six Pines Apartments under the equity method. We now own 100% of this Class A multi-family property located in The Woodlands Town Center. Included in the Consolidated Statements of Operations for the year ended December 31, 2016 are revenues of $2.7 million and a pre-tax net loss of $0.4 million since the acquisition date.

On March 16, 2016, we sold the 80 South Street Assemblage for net cash proceeds of $378.3 million, resulting in a pre-tax gain of $140.5 million. 80 South Street Assemblage was comprised of a 42,694 square foot lot with certain air rights, providing total residential and commercial development rights of 817,784 square feet that had been acquired over the course of 2014 and 2015.

On September 4, 2015, we sold The Club at Carlton Woods, its 36-hole golf and country club in The Woodlands, for net cash proceeds of $25.1 million, and purchaser’s assumption of net liabilities of $4.0 million, resulting in a pre-tax gain of $29.1 million. The property was comprised of total assets of $20.9 million and total liabilities of $24.9 million. The property was developed and operated by us as an amenity for selling residential lots in a gated community in The Woodlands. Most of the lots had been previously sold, and the sale of this property allowed us to redeploy capital to our development activities.

NOTE 5  INVESTMENTS IN REAL ESTATE AND OTHER AFFILIATES

Our investment in Real Estate and Other Affiliates that are reported in accordance with the equity and cost methods are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Economic/Legal Ownership

 

Carrying Value

 

Share of Earnings/Dividends

 

 

December 31, 

 

December 31, 

 

December 31, 

 

December 31, 

 

Year Ended December 31,

($ in thousands)

   

2017

   

2016

   

2017

   

2016

   

2017

   

2016

   

2015

Equity Method Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Master Planned Communities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Summit (a)

 

 —

%  

 

 —

% 

 

$

45,886

 

$

32,653

 

$

23,234

 

$

43,501

 

$

 —

Operating Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Las Vegas 51s, LLC (b) (c)

 

100.00

 

 

50.00

 

 

 

 —

 

 

11,062

 

 

(152)

 

 

12

 

 

152

Constellation (b) (c)

 

100.00

 

 

50.00

 

 

 

 —

 

 

2,730

 

 

(323)

 

 

(54)

 

 

 —

The Metropolitan Downtown Columbia (d)

 

50.00

 

 

50.00

 

 

 

 —

 

 

(1,064)

 

 

390

 

 

(800)

 

 

(13)

Millennium Six Pines Apartments (b)

 

100.00

 

 

100.00

 

 

 

 —

 

 

 —

 

 

 —

 

 

44

 

 

(1,165)

Stewart Title of Montgomery County, TX

 

50.00

 

 

50.00

 

 

 

3,673

 

 

3,611

 

 

386

 

 

696

 

 

996

Woodlands Sarofim #1

 

20.00

 

 

20.00

 

 

 

2,696

 

 

2,683

 

 

53

 

 

182

 

 

166

Strategic Developments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Circle T Ranch and Power Center (a)

 

50.00

 

 

50.00

 

 

 

4,455

 

 

4,956

 

 

 —

 

 

10,497

 

 

 —

HHMK Development

 

50.00

 

 

50.00

 

 

 

10

 

 

10

 

 

 —

 

 

 —

 

 

549

KR Holdings

 

50.00

 

 

50.00

 

 

 

749

 

 

707

 

 

41

 

 

18

 

 

1,289

m.flats/TEN.M (a)

 

50.00

 

 

50.00

 

 

 

6,521

 

 

6,379

 

 

(415)

 

 

 —

 

 

 —

33 Peck Slip (a)

 

35.00

 

 

35.00

 

 

 

8,651

 

 

8,243

 

 

(643)

 

 

106

(e)

 

 —

 

 

 

 

 

 

 

 

 

72,641

 

 

71,970

 

 

22,571

 

 

54,202

 

 

1,974

Cost method investments

 

 

 

 

 

 

 

 

3,952

 

 

4,406

 

 

2,927

 

 

2,616

 

 

1,747

Investment in Real Estate and Other Affiliates

 

 

 

 

 

 

 

$

76,593

 

$

76,376

 

$

25,498

 

$

56,818

 

$

3,721

(a)

Please refer

FINANCIAL STATEMENTS
FOOTNOTES
Table of Contents
Index to the discussion below for a description of the joint venture ownership structure.

Financial Statements

F-22

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THE HOWARD HUGHES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(b)

We acquired our joint venture partner’s interest and have fully consolidated the assets and liabilities of the entity. See Note 4 – Acquisitions and Dispositions for additional information regarding this transaction.

(c)

Equity method VIE as of December 31, 2017.

18. Segments

(d)

The Metropolitan Downtown Columbia was in a deficit position of $2.6 million and $1.1 million at December 31, 2017 and December 31, 2016, respectively, due to distributions from operating cash flows in excess of basis. This deficit balance is presented in Accounts payable and accrued expenses at December 31, 2017. The deficit balance as of December 31, 2016 has been presented as previously reported.


(e)

The 33 Peck Slip hotel was closed in December 2016 for redevelopment and was transferred to the Strategic Developments segment as of January 1, 2017. The share of earnings for the year ended December 31, 2016 was recorded in the Operating Assets segment but is reflected above in the Strategic Developments segment for comparative purposes.

As of December 31, 2017, we are not the primary beneficiary of any of the joint ventures listed above because we do not have the power to direct activities that most significantly impact the economic performance of the joint ventures, and therefore, we report our interests in accordance with the equity method. At December 31, 2017, our 33 Peck Slip VIE with an aggregate carrying value of $8.7 million does not have sufficient equity at risk to finance its operations without additional financial support, as further discussed below. Our maximum exposure to loss as a result of this investment is limited to the aggregate carrying value of the investment as we have not provided any guarantees or otherwise made firm commitments to fund amounts on behalf of this VIE. The aggregate carrying value of unconsolidated VIEs (Las Vegas 51s and Constellation at December 31, 2016, prior to our acquisition) was $13.8 million as of December 31, 2016, and was classified as Investment in Real Estate and Other Affiliates in the Consolidated Balance Sheets.

As of December 31, 2017, approximately $183.9 million of indebtedness was secured by the properties owned by our Real Estate and Other Affiliates of which our share was approximately $85.0 million based upon our economic ownership. All of this indebtedness is without recourse to us.

We are the primary beneficiary of three VIEs which are consolidated in the financial statements. The creditors of the consolidated VIEs do not have recourse to us. As of December 31, 2017, the carrying values of the assets and liabilities associated with the operations of the consolidated VIEs were $24.8 million and $2.7 million, respectively. As of December 31, 2016, the carrying values of the assets and liabilities associated with the operations of the consolidated VIEs were $21.7 million and $1.4 million, respectively. The assets of the VIEs are restricted for use only by the particular VIEs and are not available for our general operations.

Significant activity for our investments in Real Estate Affiliates and the related accounting considerations are described below.

The Summit

During the first quarter of 2015, we formed DLV/HHPI Summerlin, LLC (“The Summit”) a joint venture with Discovery Land Company (“Discovery”), and we contributed land with a book basis of $13.4 million and transferred SID bonds related to such land with a carrying value of $1.3 million to the joint venture at the agreed upon capital contribution value of $125.4 million, or $226,000 per acre. Discovery is required to fund up to a maximum of $30.0 million of cash as their capital contribution and we have no further capital obligations. The gains on the contributed land will be recognized in Equity in earnings from Real Estate and Other Affiliates as the joint venture sells lots. 

After receipt of our capital contribution of $125.4 million and a 5.0% preferred return on such capital contribution, Discovery is entitled to cash distributions by the joint venture until it has received two times its equity contribution. Any further cash distributions are shared equally. Discovery is the manager of the project, and development began in the second quarter of 2015. Given the nature of the venture’s capital structure and the provisions for the liquidation of assets, our share of the venture’s income-producing activities will be recognized based on the HLBV method. Please refer to Note 1 – Summary of Significant Accounting Policies for a description of the HLBV method.

Relevant financial statement information for The Summit is summarized as follows:

 

 

 

 

 

 

 

 

 

December 31,

(in millions)

 

2017

 

2016

Total Assets

 

$

166.9

 

$

151.4

Total Liabilities

 

 

118.9

 

 

116.6

Total Equity

 

 

48.0

 

 

34.8

F-23

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THE HOWARD HUGHES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 

 

 

 

 

 

Year Ended December 31,

(in millions)

 

2017

   

2016

Revenues (a)

 

$

58.6

 

$

79.8

Net income

 

 

23.2

 

 

43.5

Gross Margin

 

 

31.2

 

 

47.1

(a)

Revenues related to land sales at the joint venture are recognized on a percentage of completion basis.

Circle T Ranch and Power Center

On June 1, 2016, the Westlake Retail Associates joint venture closed on a 72-acre land sale with an affiliate of Charles Schwab Corporation. The year ended December 31, 2016 reflects the recognition of $10.5 million in Equity in earnings from Real Estate and Other Affiliates resulting from the land sale.

m.flats/TEN.M

On October 4, 2013, we entered into a joint venture agreement with a local developer, Kettler, Inc., to construct an apartment complex with ground floor retail in Downtown Columbia, Maryland. We contributed approximately five acres of land having a book value of $4.0 million to the joint venture and subsequently incurred an additional $3.1 million in capitalized development costs for a total book value contribution of $7.1 million. Our land was valued at $23.4 million, or $53,500 per constructed unit. In January 2016, the joint venture closed on an $88.0 million construction loan which is non-recourse to us and bears interest at one-month LIBOR plus 2.40% with an initial maturity date of February 2020, with three, one-year extension options. Upon closing of the loan, Kettler, Inc. contributed $16.1 million in cash and $7.3 million was distributed to us, of which we subsequently reinvested $6.3 million in the project in 2016. We accounted for this transaction as a partial sale of the land for which we recognized a net profit of $0.2 million at December 31, 2016.

33 Peck Slip

In January 2016, we entered into a joint venture to purchase a hotel located at 33 Peck Slip in the Seaport District of New York with a capital contribution of $6.0 million. We advanced a bridge loan of $25.0 million at a 5.0% interest rate to the joint venture at closing to expedite the acquisition, which was repaid in full in June 2016. In the second quarter of 2016, upon completion of a refinancing of the property with a $36.0 million redevelopment loan, we made additional capital contributions of $2.3 million in 2016 and $0.7 million in 2017. The 33 Peck Slip hotel was closed in December 2016 for redevelopment and was transferred to the Strategic Developments segment. Our total investment in the joint venture is $8.7 million as of December 31, 2017.

NOTE 6  IMPAIRMENT

We review our real estate assets for potential impairment indicators whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Impairment or disposal of long‑lived assets in accordance with ASC 360 requires that if impairment indicators exist and expected undiscounted cash flows generated by the asset over our anticipated holding period are less than its carrying amount, an impairment provision should be recorded to write down the carrying amount of the asset to its fair value. The impairment analysis does not consider the timing of future cash flows and whether the asset is expected to earn an above or below-market rate of return.

Each investment in Real Estate and Other Affiliates as discussed in Note 5 – Real Estate and Other Affiliates is evaluated periodically for recoverability and valuation declines that are other-than-temporary. If the decrease in value of our investment in a Real Estate and Other Affiliate is deemed to be other-than-temporary, our investment in such Real Estate and Other Affiliate is reduced to its estimated fair value.

No impairment charges were recorded during the years ended December 31, 2017 and 2015. During the third quarter of 2016, we implemented a plan to sell Park West, a 249,177 square foot open-air shopping, dining and entertainment destination in Peoria, Arizona and recognized a $35.7 million impairment charge due to our shorter than previously anticipated holding

F-24

Table of Contents

THE HOWARD HUGHES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

period, adjusting the net carrying value down to its estimated fair market value. On December 29, 2016, we sold Park West for proceeds of $32.5 million, recognized a loss of $1.1 million, net of transaction costs, in conjunction with the sale and redeployed the net cash proceeds from this unleveraged asset into our existing developments.

The following table summarizes our provision for impairment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for impairment as of December 31, 

Impaired Asset

 

Location

 

Method of Determining Fair Value

 

2017

    

2016

 

2015

 

 

 

 

 

 

(In thousands)

Operating Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Park West

 

Peoria, AZ

 

Discounted cash flow analysis using capitalization rate of 6.75%

 

$

 —

 

$

35,734

 

$

 —

NOTE 7  FAIR VALUE

ASC 820, Fair Value Measurement, emphasizes that fair value is a market-based measurement that should be determined using assumptions market participants would use in pricing an asset or liability. The standard establishes a hierarchal disclosure framework which prioritizes and ranks the level of market price observability used in measuring assets or liabilities at fair value. Market price observability is impacted by a number of factors, including the type of investment and the characteristics specific to the asset or liability. Assets or liabilities with readily available active quoted prices, or for which fair value can be measured from actively quoted prices, generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

The following table presents the fair value measurement hierarchy levels required under ASC 820 for each of our assets and liabilities that are measured at fair value on a recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2017

 

December 31, 2016

 

 

Fair Value Measurements Using

 

Fair Value Measurements Using

(In thousands)

    

Total

    

Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)

    

Significant
Other
Observable
Inputs
(Level 2)

    

Significant
Unobservable
Inputs
(Level 3)

    

Total

    

Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)

    

Significant
Other
Observable
Inputs
(Level 2)

    

Significant
Unobservable
Inputs
(Level 3)

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

50,135

 

$

50,135

 

$

 —

 

$

 —

 

$

18

 

$

18

 

$

 —

 

$

 —

Interest rate swap derivative assets

 

 

4,470

 

 

 —

 

 

4,470

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap derivative liabilities

 

 

5,961

 

 

 —

 

 

5,961

 

 

 —

 

 

(149)

 

 

 —

 

 

(149)

 

 

 —

Warrants

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

332,170

 

 

 —

 

 

 —

 

 

332,170

Cash equivalents consist of registered money market mutual funds which are invested in United States Treasury bills that are valued at the net asset value of the underlying shares in the funds as of the close of business at the end of each period.

The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectation of future interest rates derived from observable market interest rate curves.

F-25

Table of Contents

THE HOWARD HUGHES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As discussed further in Note 3 –Warrant Liabilities, as of December 31, 2017, all Sponsor and Management warrants had been exercised. The following table presents a rollforward of the valuation of our Warrant liabilities:

 

 

 

 

 

 

 

 

 

 

(In thousands)

    

2017

    

2016

    

2015

Balance as of January 1

 

$

332,170

 

$

307,760

 

$

366,080

Warrant liability loss (gain) (a)

 

 

43,443

 

 

24,410

 

 

(58,320)

Exercises of Sponsor and Management Warrants

 

 

(375,613)

 

 

 —

 

 

 —

Balance as of December 31

 

$

 —

 

$

332,170

 

$

307,760

(a)

For 2017, this amount represents losses recognized relating to each warrant prior to the respective exercise date. For 2016, represents unrealized losses recorded for outstanding warrants at the end of the period. Changes in the fair value of the Sponsor Warrants and Management Warrants prior to exercise were recognized in net income as a warrant liability gain or loss.

The valuation of warrants was based on an option pricing valuation model, utilizing inputs which were classified as Level 3 due to the unavailability of comparable market data. The inputs to the valuation model included the fair value of stock related to the warrants, exercise price and term of the warrants, expected volatility, risk-free interest rate, dividend yield and, as appropriate, a discount for lack of marketability. Generally, an increase in expected volatility would increase the fair value of the liability. The impact of the volatility on fair value diminished as the market value of the stock increased above the strike price. As the period of restriction lapsed, the marketability discount reduced to zero and increased the fair value of the warrants.

The significant unobservable inputs used in the fair value measurement of our warrant liabilities as of December 31, 2016 were as follows:

Unobservable Inputs

Expected
Volatility (a)

Marketability
Discount (b)

December 31, 2017 (c)

N/A

N/A

December 31, 2016

31.0%

0.0% - 1.0%

(a)

Based on our implied equity volatility.

(b)

Marketability discount decreases as the contractual expiration date of the marketability restrictions approaches.

(c)

See Note 3 – Warrant Liabilities  for additional information.

The estimated fair values of our financial instruments that are not measured at fair value on a recurring basis are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2017

 

December 31, 2016

(In thousands)

    

Fair Value
Hierarchy

    

Carrying
Amount

    

Estimated
Fair Value

    

Carrying
Amount

    

Estimated
Fair Value

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

Level 1

 

$

810,924

 

$

810,924

 

$

665,492

 

$

665,492

Accounts receivable, net (a)

 

Level 3

 

 

13,041

 

 

13,041

 

 

9,883

 

 

9,883

Notes receivable, net (b)

 

Level 3

 

 

5,864

 

 

5,864

 

 

155

 

 

155

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed-rate debt (c)

 

Level 2

 

$

1,526,875

 

$

1,554,766

 

$

1,184,141

 

$

1,224,573

Variable-rate debt (c)

 

Level 2

 

 

1,350,914

 

 

1,350,914

 

 

1,524,319

 

 

1,524,319

(a)

Accounts receivable, net is shown net of an allowance of $9.3 million and $7.9 million at December 31, 2017 and 2016, respectively.

(b)

Notes receivable, net is shown net of an allowance of $0.1 million at December 31, 2017 and 2016.

(c)

Excludes related unamortized financing costs.

The fair value of our 2025 Notes, included in fixed-rate debt in the table above, is based upon the trade price closest to the end of the period presented. The fair value of other fixed-rate debt in the table above (please refer to Note 8 – Mortgages, Notes and Loans Payable in our Consolidated Financial Statements), was estimated based on a discounted future cash payment model, which includes risk premiums and a risk free rate derived from the current London Interbank Offered Rate (“LIBOR”) or U.S. Treasury obligation interest rates. The discount rates reflect our judgment as to what the approximate current lending rates for

F-26

Table of Contents

THE HOWARD HUGHES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

loans or groups of loans with similar maturities and credit quality would be if credit markets are operating efficiently and assuming that the debt is outstanding through maturity.

The carrying amounts for our variable-rate debt approximate fair value given that the interest rates are variable and adjust with current market rates for instruments with similar risks and maturities.

The carrying amounts of cash and cash equivalents and accounts receivable approximate fair value because of the short‑term maturity of these instruments.

NOTE 8  MORTGAGES, NOTES AND LOANS PAYABLE, NET

Mortgages, notes and loans payable, net are summarized as follows:

 

 

 

 

 

 

 

 

 

December 31, 

(In thousands)

    

2017

    

2016

Fixed-rate debt:

 

 

 

 

 

 

Unsecured 5.375% Senior Notes

 

$

1,000,000

 

$

 —

Unsecured 6.875% Senior Notes

 

 

 —

 

 

750,000

Secured mortgages, notes and loans payable

 

 

499,299

 

 

390,118

Special Improvement District bonds

 

 

27,576

 

 

44,023

Variable-rate debt:

 

 

 

 

 

 

Mortgages, notes and loans payable (a)

 

 

1,350,914

 

 

1,524,319

Unamortized bond issuance costs

 

 

(6,898)

 

 

(5,779)

Deferred financing costs

 

 

(12,946)

 

 

(11,934)

Total mortgages, notes and loans payable, net

 

$

2,857,945

 

$

2,690,747

(a)

As more fully described below, $428.3 million and $182.1 million of variable rate debt has been swapped to a fixed rate for the term of the related debt as of December 31, 2017 and 2016, respectively.

F-27

Table of Contents

THE HOWARD HUGHES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents our mortgages, notes, and loans payable by property, presented within each segment in order of extended maturity date

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maximum

 

Carrying Value

 

 

Initial / Extended

 

Interest

 

 

Facility

 

December 31, 

 

December 31,

($ in thousands)

  

Maturity (a)

  

Rate

 

    

Amount

  

2017

 

2016

Master Planned Communities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Summerlin South SID Bonds - S124

 

December 2019

 

5.95

%

 

 

 

 

$

84

 

$

123

Summerlin South SID Bonds - S128

 

December 2020

 

7.30

%

 

 

 

 

 

390

 

 

440

Summerlin South SID Bonds - S132

 

December 2020

 

6.00

%

 

 

 

 

 

912

 

 

1,268

The Woodlands Master Credit Facility

 

April 2020 / April 2021

 

4.24

%

(b)

$

180,000

 

 

150,000

 

 

150,000

Bridgeland Credit Facility

 

November 2020 / November 2022

 

4.76

%

(b)

 

65,000

 

 

65,000

 

 

65,000

Summerlin South SID Bonds - S151

 

June 2025

 

6.00

%

 

 

 

 

 

3,763

 

 

4,159

Summerlin South SID Bonds - S128C

 

December 2030

 

6.05

%

 

 

 

 

 

4,283

 

 

4,600

Summerlin South SID Bonds - S159

 

June 2035

 

6.00

%

 

 

 

 

 

139

 

 

2,389

Summerlin West SID Bonds - S812

 

October 2035

 

6.00

%

 

 

 

 

 

15,193

 

 

27,459

        Master Planned Communities Total

 

 

 

 

 

 

 

 

 

 

239,764

 

 

255,438

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1701 Lake Robbins

 

April 2017

 

5.81

%

 

 

 

 

 

 —

 

 

4,600

Outlet Collection at Riverwalk

 

October 2017 / October 2018

 

4.24

%

(b)

 

53,841

 

 

53,841

 

 

55,778

1725-35 Hughes Landing Boulevard

 

June 2018 / June 2019

 

3.14

%

(b)

 

143,000

 

 

117,417

 

 

105,647

The Westin at The Woodlands (c)

 

August 2018 / August 2019

 

4.14

%

(b)

 

57,946

 

 

57,946

 

 

58,077

110 North Wacker (d)

 

October 2019

 

5.21

%

 

 

 

 

 

18,926

 

 

22,704

Three Hughes Landing

 

January 2018 / December 2019

 

3.84

%

(b)

 

65,455

 

 

45,058

 

 

35,053

Lakeland Village Center at Bridgeland

 

May 2018 / May 2020

 

3.84

%

(b)

 

14,000

 

 

11,470

 

 

9,979

Embassy Suites at Hughes Landing

 

October 2018 / October 2020

 

3.99

%

(b)

 

37,100

 

 

31,245

 

 

29,461

The Woodlands Resort & Conference Center (c)

 

December 2018 / December 2020

 

4.74

%

(b)

 

               65,500

 

 

65,500

 

 

70,000

One Merriweather

 

February 2020 / February 2021

 

3.64

%

(b)

 

49,929

 

 

42,332

 

 

23,588

Downtown Summerlin (e)

 

September 2020 / September 2021

 

4.69

%

(b)

 

274,088

 

 

274,088

 

 

302,981

Two Merriweather

 

October 2020 / October 2021

 

3.99

%

(b)

 

33,156

 

 

19,429

 

 

 —

HHC 242 Self-Storage

 

October 2019 / October 2021

 

4.09

%

(b)

 

6,658

 

 

6,243

 

 

3,708

HHC 2978 Self-Storage Facility

 

January 2020 / January 2022

 

4.09

%

(b)

 

6,368

 

 

5,634

 

 

1,715

70 Columbia Corporate Center

 

May 2020 / May 2022

 

3.49

%

(b)(f)

 

 

 

 

20,000

 

 

20,000

One Mall North

 

May 2020 / May 2022

 

3.74

%

(b)(f)

 

 

 

 

14,463

 

 

 —

10-60 Columbia Corporate Centers (g)

 

May 2020 / May 2022

 

3.33

%

(b)(f)

 

 

 

 

80,000

 

 

80,000

20/25 Waterway Avenue

 

May 2022

 

4.79

%

 

 

 

 

 

13,646

 

 

13,886

Millennium Waterway Apartments

 

June 2022

 

3.75

%

 

 

 

 

 

55,095

 

 

55,584

Ward Village (h)

 

September 2021 / September 2023

 

3.82

%

(b)

 

 

 

 

238,718

 

 

238,718

9303 New Trails

 

December 2023

 

4.88

%

 

 

 

 

 

12,003

 

 

12,378

4 Waterway Square

 

December 2023

 

4.88

%

 

 

 

 

 

35,151

 

 

36,249

3831 Technology Forest Drive

 

March 2026

 

4.50

%

 

 

 

 

 

21,954

 

 

22,383

Kewalo Basin Harbor

 

September 2027

 

4.24

%

(b)

 

11,562

 

 

 —

 

 

 —

Millennium Six Pines Apartments

 

August 2028

 

3.39

%

 

 

 

 

 

42,500

 

 

42,500

3 Waterway Square

 

August 2028

 

3.94

%

 

 

 

 

 

50,327

 

 

51,590

One Hughes Landing

 

December 2029

 

4.30

%

 

 

 

 

 

52,000

 

 

52,000

Downtown Summerlin SID Bonds - S128

 

December 2030

 

6.05

%

 

 

 

 

 

2,812

 

 

3,350

Two Hughes Landing

 

December 2030

 

4.20

%

 

 

 

 

 

48,000

 

 

48,000

One Lakes Edge

 

March 2029 / March 2031

 

4.50

%

 

 

 

 

 

69,440

 

 

68,874

Constellation Apartments

 

January 2033

 

4.07

%

 

 

 

 

 

24,200

 

 

 —

Hughes Landing Retail

 

December 2036

 

3.50

%

 

 

 

 

 

35,000

 

 

35,000

Columbia Regional Building

 

February 2037

 

4.48

%

 

 

 

 

 

25,000

 

 

22,188

Other

 

Various

 

3.60

%

 

 

 

 

 

 —

 

 

236

        Operating Assets Total

 

 

 

 

 

 

 

 

 

 

1,589,438

 

 

1,526,227

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Strategic Developments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Waiea and Anaha

 

November 2017 / November 2019

 

8.24

%

(b)

 

 

 

 

 —

 

 

160,847

Ke Kilohana

 

December 2019 / December 2020

 

4.74

%

(b)

 

142,656

 

 

 —

 

 

 —

Ae`o

 

December 2019 / December 2021

 

5.49

%

(b)

 

230,000

 

 

33,603

 

 

 —

100 Fellowship Drive

 

May 2022

 

2.99

%

(b)

 

51,426

 

 

 1

 

 

 —

Aristocrat

 

October 2022

 

4.90

%

(b)

 

31,118

 

 

 —

 

 

 —

Two Summerlin

 

October 2022

 

4.90

%

(b)

 

33,432

 

 

 —

 

 

 —

          Strategic Developments Total

 

 

 

 

 

 

 

 

 

 

33,604

 

 

160,847

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other corporate financing arrangements

 

July 2018

 

3.00

%

 

 

 

 

 

14,983

 

 

15,948

Senior Notes

 

October 2021

 

6.88

%

 

 

 

 

 

 —

 

 

750,000

Senior Notes

 

March 2025

 

5.38

%

 

 

 

 

 

1,000,000

 

 

 —

Unamortized bond issuance costs

 

 

 

 

 

 

 

 

 

 

(6,898)

 

 

(5,779)

Deferred financing costs

 

 

 

 

 

 

 

 

 

 

(12,946)

 

 

(11,934)

Total mortgages, notes, and loans payable

 

 

 

 

 

 

 

 

 

$

2,857,945

 

$

2,690,747

(a)

Maturity dates presented include initial maturity date as well as the extended or final maturity date as contractually stated. Extension periods generally can be exercised at our option at the initial maturity date, subject to customary extension terms that are based on current property performance projections. Such extension terms may include, but are not limited to, minimum debt service coverage, minimum occupancy levels or condominium sales levels, as

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THE HOWARD HUGHES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

applicable and other performance criteria. In certain cases due to property performance not meeting covenants, we may have to paydown a portion of the loan in order to obtain the extension.

(b)

The interest rate presented is based on the one month LIBOR, three month LIBOR or Prime rate, as applicable, which was 1.49%,  1.61% and 4.50%, respectively, at December 31, 2017.

(c)

Based on current performance of The Westin at The Woodlands and The Woodlands Resort and Conference Center, a paydown may be required in order to exercise the extension option.

(d)

LIBOR on the $18.9 million outstanding principal balance is swapped to a 2.96% fixed-rate through maturity resulting an overall fixed rate of 5.21%.

(e)

The forward starting swaps related to this debt became effective on December 31, 2017. LIBOR on the $100.0 million of the outstanding principal balance is swapped to a 2.68% fixed-rate through maturity, LIBOR on another $100.0 million of the outstanding principal balance is swapped to a 2.62% fixed-rate through maturity, and LIBOR on $50.0 million of the outstanding principal balance is swapped to a 2.65% fixed-rate through maturity resulting in an overall rate of 4.69%

(f)

These three notes are part of one master facility, with all three respective properties collateralizing the total $114.5 million indebtedness.

(g)

LIBOR on $40.0 million of the outstanding principal balance is swapped to a 1.66% fixed-rate through maturity resulting in an overall fixed rate of 3.33%.

(h)

LIBOR on $119.4 million of the outstanding principal balance is swapped to a 1.14% fixed-rate through maturity resulting in an overall fixed rate of 3.82%.

The weighted average interest rate on our mortgages, notes and loans payable, excluding interest rate hedges, was 4.61% and 4.71% as of December 31, 2017 and 2016, respectively.

Except for the items listed below, all of the mortgage debt is secured by the individual properties listed in the table above and is non-recourse to HHC:

i.

$1.0 billion of Senior Notes due 2025;

ii.

$274.1 million financing for the Downtown Summerlin development which has an initial maximum recourse of 35% of the outstanding balance, which will reduce to 15.0% upon achievement of a 1.15:1.0 debt service coverage ratio. The recourse further reduces to 10% upon achievement of a 1.25:1.0 debt service coverage ratio, a 90% occupancy level, and average tenant sales of at least $500.00 per net rentable square foot. As of December 31, 2017, 35% of the outstanding loan balance remains recourse to HHC;

iii.

$26.9 million, or 50% of the Outlet Collection at Riverwalk outstanding loan balance is recourse to HHC;

iv.

$15.0 million of Other Corporate Financing Arrangements; and

v.

$18.9 million of the 110 North Wacker mortgage.

Certain of our loans contain provisions which grant the lender a security interest in the operating cash flow of the property that represents the collateral for the loan. Certain mortgage notes may be prepaid subject to a prepayment penalty equal to a yield maintenance premium, defeasance, or a percentage of the loan balance. As of December 31, 2017, land, buildings and equipment and developments with a net book value basis of $3.4 billion have been pledged as collateral for our mortgages, notes and loans payable. 

The following table summarizes the contractual obligations relating to our mortgages, notes and loans payable as of December 31, 2017 based on extended maturity dates:

 

 

 

 

 

 

Mortgages, notes

 

 

and loans payable

(In thousands)

 

 principal payments

2018

 

$

78,207

2019

 

 

256,338

2020

 

 

178,836

2021

 

 

467,010

2022

 

 

251,086

Thereafter

 

 

1,646,312

Total principal payments

 

 

2,877,789

Deferred financing costs, net and unamortized underwriting fees

 

 

(19,844)

Total mortgages, notes and loans payable

 

$

2,857,945

As of December 31, 2017, we were in compliance with all financial covenants included in the debt agreements governing our indebtedness.

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THE HOWARD HUGHES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Master Planned Communities

The Woodlands Master Credit Facility was amended and restated on July 31, 2015 to a $200.0 million maximum facility amount consisting of a $100.0 million term loan and a $100.0 million revolver (together, the “TWL Facility”). The TWL Facility bears interest at one-month LIBOR plus 2.75% and had an August 2016 initial maturity date with two,  one–year extension options. In July 2016, we exercised our first one-year extension option, which reduced the total commitment to $175.0 million. Semi-annual principal payments of $25.0 million began on December 31, 2016 and continue through the second, optional one-year extension period. The TWL Facility and The Woodlands Resort & Conference Center loans are recourse to the entities that directly own The Woodlands operations. The TWL Facility also contains certain covenants that, among other things, require the maintenance of specified financial ratios, limit the incurrence of additional recourse indebtedness at The Woodlands, and limit distributions from The Woodlands to us based on a loan‑to‑value test. The amendment also modified certain covenants to allow for more construction loan guarantees by the entities that directly own The Woodlands than would otherwise have been permitted by the prior facility. On April 27, 2017, TWL Facility was refinanced to increase the facility by $30.0 million for a total of $180.0 million, providing the ability to fund the development of Creekside Park Apartments or for other corporate purposes. The new facility bears interest at one-month LIBOR plus 2.75% with an initial maturity date of April 27, 2020 and a one-year extension option.

The Summerlin MPC uses SID bonds to finance certain common infrastructure improvements. These bonds are issued by the municipalities and are secured by the assessments on the land. The majority of proceeds from each bond issued is held in a construction escrow and disbursed to us as infrastructure projects are completed, inspected by the municipalities and approved for reimbursement. Accordingly, the SID bonds have been classified as debt, and the Summerlin MPC pays the debt service on the bonds semi‑annually. As Summerlin sells land, the buyers assume a proportionate share of the bond obligation at closing, and the residential sales contracts provide for the reimbursement of the principal amounts that we previously paid with respect to such proportionate share of the bond. In the years ended December 31, 2017 and 2016, no new SID bonds were issued and $13.9 million and $7.7 million in obligations were assumed by buyers, respectively.

Operating Assets

On January 19, 2018, we paid off the $18.9 million mortgage loan for 110 North Wacker and settled the related swap asset of $0.3 million.

On December 28, 2017, we closed on a $24.2 million non‑recourse financing for Constellation, a multi-family building located in Summerlin. The loan bears interest at 4.07% and matures on January 1, 2033.

On December 5, 2017, we executed a modification of our $65.5 million Three Hughes Landing facility to extend the maturity 30 days to January 5, 2018. On January 5, 2018, we modified and extended the loan which bears interest at one-month LIBOR plus 2.60% with an initial maturity of December 5, 2018, with two,  one-year extension options.

On September 13, 2017, we modified and extended our $311.8 million Downtown Summerlin facility with a $30.0 million paydown. The modified loan has a maximum facility of $275.9 million and bears interest at one-month LIBOR plus 2.15% with a maturity of September 13, 2020, with one,  one-year extension option.

On August 11, 2017, we closed on a construction loan totaling $11.6 million for Kewalo Harbor, located in Honolulu, Hawai‘i, to be used for improvements benefitting our Ward Village development. The loan bears interest at one-month LIBOR plus 2.75% with a maturity of September 1, 2027. As of December 31, 2017, we had not drawn any proceeds under this loan.

On April 6, 2017, we paid off a $4.6 million maturing mortgage loan that we assumed as part of the acquisition of 1701 Lake Robbins in July 2014.

On January 19, 2017, we closed on a non‑recourse financing totaling $25.0 million replacing the $23.0 million construction loan on the Columbia Regional Building, a retail building located in Columbia, Maryland. The loan bears interest at 4.48% and matures on February 11, 2037.

On January 17, 2017, we amended and restated our $80.0 million non-recourse mortgage financing for the 10-60 Columbia Corporate Center office buildings with a $94.5 million loan. Contemporaneously with this amendment, we received $14.5 

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THE HOWARD HUGHES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

million to purchase One Mall North, a 97,500 square foot office building in Columbia, Maryland. The loan bears interest at LIBOR plus 1.75% and has an initial maturity date of May 6, 2020, with two,  one-year extension options. On June 27, 2017, we modified our $94.5 million non-recourse mortgage financing with a $114.5 million loan. This amendment added 70 Columbia Corporate Center, a 170,741 square foot office building in Columbia, Maryland, to the collateral pool and allowed us to draw $20.0 million and fully repay the outstanding balance of the existing indebtedness on the 70 Columbia Corporate Center note.

On December 30, 2016, we amended and restated our $85.0 million mortgage financing for The Woodlands Resort & Conference Center with a $70.0 million mortgage. Contemporaneously with this amendment, we made a $15.0 million principal reduction payment as required by the loan agreement. The loan bears interest at LIBOR plus 3.25% and has an initial maturity date of December 30, 2018, with two,  one-year extension options.

On December 8, 2016, we modified the $36.6 million financing to $35.0 million for Hughes Landing Retail. The loan bears fixed interest at 3.50% and has an initial maturity date of December 8, 2036.

On November 25, 2016, we amended and extended our $73.5 million construction loan for One Lakes Edge with a $71.9 million mortgage. Contemporaneously with this amendment, we made a $3.0 million principal reduction payment as required by the loan agreement. The loan bears interest at one-month LIBOR plus 3.50%.  On February 23, 2017, we refinanced the One Lakes Edge construction loan with a 12-year Fannie Mae loan. The new loan amount is $69.4 million with a fixed rate of 4.50%. The loan is interest only for four years then begins amortizing on a 30-year basis.

On October 24, 2016, we modified the $64.4 million construction financing to $56.1 million for Outlet Collection at Riverwalk. The loan bears interest at one-month LIBOR plus 2.75% and has an initial maturity date of October 24, 2017 with one,  one–year extension option. On October 24, 2017, we exercised our one-year extension option on our $54.3 million Outlet Collection at Riverwalk facility which extended the maturity date to October 24, 2018. The initial recourse amount of 50.0% will be reduced to 25.0% upon the achievement of an 11.0% debt yield and a minimum level of tenant sales per square foot for 12 months. As of December 31, 2017, 50% of the outstanding loan balance remains recourse to us.

On October 7, 2016, we closed on a $33.2 million non-recourse construction loan for Two Merriweather, bearing interest at one-month LIBOR plus 2.50% with an initial maturity date of October 7, 2020 and a one-year extension option.

On September 12, 2016, we amended and restated the $238.7 million first mortgage secured by Ward Village. The non-recourse term loan bears interest at one-month LIBOR plus 2.50% with an initial maturity date of September 12, 2021, with two,  one year extension options. $119.4 million of the outstanding principal balance is swapped at a 3.64% fixed-rate through maturity. There was no undrawn availability on this loan as of December 31, 2017.

On February 25, 2016, we closed on a $49.9 million non-recourse construction loan for One Merriweather, bearing interest at one-month LIBOR plus 2.15% with an initial maturity date of February 25, 2020, with a one-year extension option.

On January 27, 2016, we closed on a $6.4 million non-recourse construction loan for the HHC 2978 Self-Storage Facility, bearing interest at one-month LIBOR plus 2.60% with an initial maturity date of January 2020, with two,  one-year extension options.

Strategic Developments

On January 25, 2018, we closed on a financing totaling $15.5 million for Lake Woodlands Crossing Retail, a project located in The Woodlands, Texas. The loan bears interest at LIBOR plus 1.80%, matures on January 25, 2023, and has an initial maximum recourse of 50% of the outstanding balance prior to completion of construction, at which point the repayment guarantee will reduce to 15% provided the project is 90% leased.

On October 27, 2017, we repaid the $195.3 million outstanding on our construction loan relating to Waiea and Anaha in conjunction with closing on the sales of units at Anaha.

On October 19, 2017, we closed on a construction loan totaling $64.6 million, of which $31.1 million will be used for development of Aristocrat and $33.5 million will be used for development of Two Summerlin. The loan bears interest at Wall Street Journal Prime plus 0.40% with a maturity of October 19, 2022.

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On May 31, 2017, we closed on a $51.4 million construction loan for 100 Fellowship Drive, located in The Woodlands. The loan bears interest at one-month LIBOR plus 1.50% with a maturity of May 31, 2022.

On December 23, 2016, we closed on a $142.7 million partial recourse construction loan for Ke Kilohana, bearing interest at one-month LIBOR plus 3.25% with an initial maturity date of December 23, 2019 and a one-year extension option.

On December 23, 2016, we closed on a $230.0 million non-recourse construction loan for Ae`o, bearing interest at one-month LIBOR plus 4.00% with a 4.50% floor and 2.50% LIBOR cap. The initial maturity date is December 23, 2019 with two,  one-year extension options.

Corporate

On March 16, 2017, we issued $800.0 million in aggregate principal amount of 5.375% senior notes due March 15, 2025 (the “2025 Notes”) and completed a tender offer and consent solicitation for any and all of our $750.0 million existing 6.875% senior notes due October 1, 2021. We recognized a loss on redemption of $46.4 million in conjunction with this transaction. On June 12, 2017, we issued an additional $200.0 million of the 2025 Notes at a premium to par of 2.25%. Interest on the 2025 Notes is paid semi-annually, on March 15th and September 15th of each year, beginning on September 15, 2017. At any time prior to March 15, 2020, we may redeem all or a portion of the 2025 Notes at a redemption price equal to 100% of the principal plus a “make-whole” declining call premium. At any time prior to March 15, 2020, we may also redeem up to 35% of the 2025 Notes at a price of 105.375% with net cash proceeds of certain equity offerings, plus accrued and unpaid interest. The 2025 Notes contain customary terms and covenants and have no financial maintenance covenants.

NOTE 9  INCOME TAXES

On December 22, 2017, President Trump signed into law H.R. 1, known as the “Tax Cuts and Jobs Act” (the “Tax Act”) that significantly changes the United States federal income tax system. The Tax Act includes a number of changes in existing law including a permanent reduction in the federal income tax rate from 35% to 21%. The rate reduction took effect on January 1, 2018. 

Deferred income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax basis of assets and liabilities using enacted tax rates currently in effect. Deferred income taxes also reflect the impact of operating loss and tax credit carryforwards. As a result of the reduction in the federal income tax rate to 21% and other changes under the Tax Act that impact timing differences, we recorded a one-time transitional tax benefit of $101.7 million in our consolidated statement of operations related to the remeasurement of our net deferred tax liabilities.

This provisional amount of $101.7 million is based on our current understanding of the impact of the Tax Act, which may change in the near future as notices and regulations regarding the Tax Act are issued. We need more time and further guidance to more accurately account for the tax law changes under ASC 740. While we feel confident we have accounted for the other material changes in the tax law correctly, any future notices or regulations further clarifying the law could alter our analysis.

The provision for (benefit from) income taxes for the years ended December 31, 2017, 2016 and 2015 were as follows:

 

 

 

 

 

 

 

 

 

 

(In thousands)

    

2017

    

2016

    

2015

Current

 

$

(2,338)

 

$

4,752

 

$

2,849

Deferred

 

 

(43,463)

 

 

113,698

 

 

21,152

Total

 

$

(45,801)

 

$

118,450

 

$

24,001

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Income tax expense is computed by applying the Federal corporate tax rate for the years ended December 31, 2017, 2016 and 2015 and is reconciled to the provision for income taxes as follows:

 

 

 

 

 

 

 

 

 

 

(In thousands)

    

2017

    

2016

    

2015

Tax at statutory rate on earnings from continuing operations before income taxes

 

$

42,911

 

$

112,264

 

$

52,751

(Decrease) increase in valuation allowance, net

 

 

(175)

 

 

(1,326)

 

 

1,742

State income taxes, net of Federal income tax benefit

 

 

1,408

 

 

4,004

 

 

267

Tax benefit from Tax Act

 

 

(101,688)

 

 

 —

 

 

 —

Tax expense (benefit) from other change in rates, prior period adjustments and other permanent differences

 

 

2,941

 

 

(4,591)

 

 

(7,361)

Tax benefit on equity compensation

 

 

(6,403)

 

 

 —

 

 

 —

Non-deductible warrant liability loss (gain)

 

 

15,205

 

 

8,544

 

 

(20,412)

Uncertain tax position benefit excluding interest

 

 

 —

 

 

(407)

 

 

(2,483)

Uncertain tax position interest, net of Federal income tax benefit

 

 

 —

 

 

(38)

 

 

(503)

Income tax (benefit) expense

 

$

(45,801)

 

$

118,450

 

$

24,001

Realization of a deferred tax benefit is dependent upon generating sufficient taxable income in future periods. Our net operating loss carryforwards are currently scheduled to expire in subsequent years through 2037. Some of the net operating loss carryforward amounts are subject to the separate return limitation year rules (“SRLY”). It is possible that in the future we could experience a change in control pursuant to Section 382 that could put limits on the benefit of deferred tax assets. On February 27, 2012, we entered into a Section 382 Rights Agreement, with a three-year term, to protect us from such an event and protect our deferred tax assets. On February 26, 2015, the Board of Directors extended the term of the Section 382 Rights Agreement to March 14, 2018, and our stockholders approved the terms on May 21, 2015. However, on January 2, 2018, the Board of Directors approved, and we entered into, an amendment to the Section 382 Rights Agreement to provide for an amended expiration date of January 2, 2018 and, as a result, the Section 382 Right Agreement was no longer in effect as of such date. Currently, our deferred tax assets are not protected by a Section 382 Rights Plan.

As of December 31, 2017, the amounts and expiration dates of operating loss and tax credit carryforwards for tax purposes are as follows:

 

 

 

 

 

 

 

 

 

 

 

Expiration

(In thousands)

    

Amount

    

Date

Net operating loss carryforwards - Federal

 

$

147,059

 

2024-2037

Net operating loss carryforwards - State

 

 

327,221

 

2018-2037

Capital loss carryforwards

 

 

 —

 

n/a

Tax credit carryforwards - Federal AMT

 

 

3,699

 

n/a

As of December 31, 2017 and 2016, we had gross deferred tax assets totaling $172.4 million and $294.5 million, and gross deferred tax liabilities of $316.0 million and $476.8 million, respectively. We have established a valuation allowance in the amount of $17.3 million and $18.6 million as of December 31, 2017 and 2016, respectively, against certain deferred tax assets for which it is more likely than not that such deferred tax assets will not be realized.

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THE HOWARD HUGHES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The tax effects of temporary differences and carryforwards included in the net deferred tax liabilities at December 31, 2017 and 2016 are summarized as follows:

 

 

 

 

 

 

 

(In thousands)

    

2017

    

2016

Deferred tax assets:

 

 

 

 

 

 

Operating and Strategic Developments properties, primarily differences in basis of assets and liabilities

 

$

92,210

 

$

208,862

Interest deduction carryforwards

 

 

29,247

 

 

54,759

Operating loss and tax credit carryforwards

 

 

50,914

 

 

30,866

Total deferred tax assets

 

 

172,371

 

 

294,487

Valuation allowance

 

 

(17,271)

 

 

(18,635)

Total net deferred tax assets

 

$

155,100

 

$

275,852

Deferred tax liabilities:

 

 

 

 

 

 

Property associated with MPCs, primarily differences in the tax basis of land assets and treatment  of interest and other costs

 

$

(157,181)

 

$

(262,572)

Operating and Strategic Developments properties, primarily differences in basis of assets and liabilities

 

 

(60,430)

 

 

(40,915)

Deferred income

 

 

(98,339)

 

 

(173,310)

Total deferred tax liabilities

 

 

(315,950)

 

 

(476,797)

Total net deferred tax liabilities

 

$

(160,850)

 

$

(200,945)

The deferred tax liability associated with the MPCs is largely attributable to the difference between the basis and value determined as of the date of the acquisition by our predecessors in 2004 adjusted for sales that have occurred since that time. The cash cost related to this deferred tax liability is dependent upon the sales price of future land sales and the method of accounting used for income tax purposes. The deferred tax liability related to deferred income is the difference between the income tax method of accounting and the financial statement method of accounting for prior sales of land in our MPCs.

Although we believe our tax returns are correct, the final determination of tax examinations and any related litigation could be different from what was reported on the returns. In our opinion, we have made adequate tax provisions for years subject to examination. Generally, we are currently open to audit under the statute of limitations by the Internal Revenue Service as well as state taxing authorities for the years ended December 31, 2014 through 2016.

We apply the generally accepted accounting principle related to accounting for uncertainty in income taxes, which prescribes a recognition threshold that a tax position is required to meet before recognition in the financial statements and provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition issues.

We recognize and report interest and penalties, if applicable, within our provision for income tax expense. We recognized potential interest expense related to the unrecognized tax benefits of $0.1 million for the year ended December 31, 2015. At December 31, 2017 and 2016, we had no unrecognized tax benefits and therefore recognized no interest expense. At December 31 2015, we had total unrecognized tax benefits of $36.5 million, excluding interest, of which none would impact our effective tax rate. A reconciliation of the change in our unrecognized tax benefits for the years ended December 31, 2017, 2016 and 2015 is as follows:

 

 

 

 

 

 

 

 

 

 

(In thousands)

    

2017

    

2016

    

2015

Unrecognized tax benefits, opening balance

 

$

 —

 

$

36,524

 

$

184,200

Gross increases - tax positions in prior period

 

 

 —

 

 

 —

 

 

 —

Gross decreases - tax positions in prior periods

 

 

 —

 

 

(36,524)

 

 

(147,676)

Unrecognized tax benefits, ending balance

 

$

 —

 

$

 —

 

$

36,524

The reduction in unrecognized tax benefits of $36.5 million between the period December 31, 2015 and December 31, 2016 was the result of our filing a request with the IRS to change our tax accounting method related to a subsidiary from an impermissible accounting method to a permissible accounting method which we expect to be approved.

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THE HOWARD HUGHES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Periodically we make payments to taxing jurisdictions that reduce our uncertain tax benefits but are not included in the reconciliation above, as the position is not yet settled. We made no such payments in the years ending December 31, 2017, 2016 or 2015. As of December 31, 2017 and 2016, there are no unrecognized tax benefits.

NOTE 10  COMMITMENTS AND CONTINGENCIES

In the normal course of business, from time to time, we are involved in legal proceedings relating to the ownership and operations of our properties. In management’s opinion, the liabilities, if any, that may ultimately result from such legal actions are not expected to have a material effect on our consolidated financial position, results of operations or liquidity.

As of December 31, 2017 and December 31, 2016, we had outstanding letters of credit totaling $13.8 million and $6.5 million, and surety bonds totaling $88.5 million and $112.4 million, respectively. These letters of credit and bonds were issued primarily in connection with insurance requirements, special real estate assessments and construction obligations.

We lease land or buildings at certain properties from third parties. Rental payments are expensed as incurred and have, to the extent applicable, been straight‑lined over the term of the lease. Contractual rental expense, including participation rent, was $8.6 million, $8.4 million and $9.1 million for 2017, 2016 and 2015, respectively. The amortization of above and below‑market ground leases and straight‑line rents included in the contractual rent amount was not significant.

Our obligations for minimum rentals under non-cancelable operating leases are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subsequent/

 

 

 

(In thousands)

    

2018

    

2019

    

2020

    

2021

    

2022

    

Other

    

Total

Ground lease and other leasing commitments

 

$

8,769

 

$

8,119

 

$

8,259

 

$

8,097

 

$

7,430

 

$

314,129

 

$

354,803

Seaport District

On June 27, 2013, the City of New York executed the amended and restated ground lease for Seaport District NYC. The restated lease terms provide for annual fixed base rent of $1.2 million starting July 1, 2013 with an expiration of December 30, 2072, including our options to extend. The rent escalates at 3.0% compounded annually. On July 1, 2048 the base rent will be adjusted to the higher of fair market value or the then base rent. In addition to the annual base rent, we are required to make annual payments of $210,000 toward maintenance of the East River esplanade as additional rent through the term of the lease. The additional rent escalates annually at the Consumer Price Index. Simultaneously with the execution of the lease, we executed a completion guaranty for the redevelopment of Pier 17. On January 11, 2017, we executed an amendment of the lease which, pursuant to our lease option, added an additional premise to the lease and modified other related provisions. The 2017 amendment provides for an appraisal update to be performed on completion of construction for the purposes of determining any additional rent.

In the fourth quarter 2012, the historic area of Seaport District NYC suffered damage due to flooding as a result of Superstorm Sandy. Reconstruction efforts are ongoing and the property is only partially operating. We have received $54.8 million in insurance proceeds, and we recognized Other income of $0.7 million, $6.2 million and $0.3 million for the years ended December 31, 2017, 2016 and 2015, respectively, for the receipt of insurance proceeds related to our claim.

Columbia

In November 2016, the Howard County Council authorized the issuance of up to $90.0 million of TIF bonds for the Downtown Columbia Redevelopment District’s master plan. The Final Limited Offering Memorandum for the first tranche relates to the Merriweather District, and closing on the $48.2 million of Series 2017 A Special Obligation Bonds occurred in October 2017. In the Funding Agreement for the TIF, one of our wholly-owned subsidiaries, The Howard Research and Development Corporation, has agreed to complete certain defined public improvements and to indemnify Howard County, and we have guaranteed these obligations, with a limit of $1.0 million, expiring 36 months after bond issuance.

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Table of Contents

THE HOWARD HUGHES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11  OTHER ASSETS AND LIABILITIES

The following table summarizes the significant components of Prepaid expenses and other assets:

 

 

 

 

 

 

 

 

 

December 31, 

(In thousands)

 

2017

 

2016

Condominium receivables (a)

 

$

158,516

 

$

210,219

Condominium deposits

 

 

82,605

 

 

193,197

Straight-line rent

 

 

39,136

 

 

31,518

Security and escrow deposits

 

 

37,585

 

 

61,304

Intangibles

 

 

34,802

 

 

4,046

Special Improvement District receivable

 

 

26,430

 

 

61,603

Below-market ground leases

 

 

18,647

 

 

18,986

In-place leases

 

 

10,821

 

 

16,015

Above-market tenant leases

 

 

1,648

 

 

2,457

Equipment, net of accumulated depreciation of $6.9 million and $5.3 million, respectively

 

 

16,955

 

 

17,556

Prepaid expenses

 

 

11,731

 

 

11,177

Tenant incentives and other receivables

 

 

8,482

 

 

8,773

Interest rate swap derivative assets

 

 

4,470

 

 

 —

Federal income tax receivable

 

 

2,198

 

 

15,763

Other

 

 

19,242

 

 

13,902

 

 

$

473,268

 

$

666,516

(a)

We expect $4.4 million related to Anaha will be collected in 2018, and $151.5 million and $2.7 million relating to Ae`o and Ke Kilohana, respectively, will be collected in 2019.

The $193.2 million net decrease primarily relates to the following decreases: a  $110.6 million decrease in condominium deposits due to net sales activity primarily at Waiea, Ae’o and Ke Kilohana; a decrease of $51.7 million in Condominium receivables due to closings at our Waiea and Anaha projects; a decrease of $35.2 million in Special Improvement District Receivable used to fund development costs incurred at Summerlin due to collections; a decrease of $23.7 million in security and escrow deposits primarily relating to the utilization of escrowed sales proceeds to fund remaining construction costs at Waiea; a $13.6 million decrease in Federal income tax receivables due to two IRS tax refunds; a $5.2 million decrease in In-place leases; and $2.0 million in other decreases related to above and below-market ground leases, Equipment and Tenant incentives related primarily to normally scheduled amortization.

These decreases were offset by the following: an increase of $30.8 million in Intangible Assets due to our acquisition of our partner’s 50.0% interest in the Las Vegas 51s; an increase of $7.6 million in Straight-line rent due to additional Operating Assets placed in service during the year; a $5.3 million increase in Other assets relating a receivable recorded relating to reimbursable costs by the Howard County TIF District; an increase of $4.5 million in Interest rate swap derivative assets; and a $0.6 million increase in prepaid expenses. 

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Table of Contents

THE HOWARD HUGHES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accounts Payable and Accrued Expenses

The following table summarizes the significant components of Accounts payable and accrued expenses:

 

 

 

 

 

 

 

 

 

December 31, 

(In thousands)

 

2017

 

2016

Construction payables

 

$

217,838

 

$

207,917

Condominium deposit liabilities

 

 

55,975

 

 

117,015

Deferred income

 

 

53,337

 

 

85,158

Accounts payable and accrued expenses

 

 

35,887

 

 

33,050

Tenant and other deposits

 

 

18,937

 

 

28,559

Accrued payroll and other employee liabilities

 

 

41,236

 

 

36,937

Accrued interest

 

 

20,322

 

 

16,897

Accrued real estate taxes

 

 

22,289

 

 

16,726

Straight-line ground rent liability

 

 

14,944

 

 

13,126

Interest rate swaps

 

 

5,961

 

 

(149)

Above-market ground leases

 

 

293

 

 

1,762

Other

 

 

34,699

 

 

15,012

 

 

$

521,718

 

$

572,010

The $50.3 million net decrease in total accounts payable and accrued expenses primarily relates to the following decreases: $61.0 million in Condominium deposit liabilities for the towers under construction at Ward Village as the projects move toward completion; a decrease of $31.8 million in deferred income related to recognition of income from previously deferred land sales at our Summerlin and Bridgeland MPCs; a decrease of $9.6 million in tenant and other deposits primarily related to amortization of a tenant’s prepaid rent; and a decrease of $1.5 million related to our Above-Market Ground Leases.

These decreases were partially offset by the following increases: a $19.7 million increase in Other payables which primarily relates to costs of $13.4 million accrued for our Ward Village master plan common costs; an increase of $9.9 million in construction payables primarily due to continued development activities at both Ward Village and the Merriweather District; a $6.1 million increase in Interest rate swaps liability primarily due to a decrease in fair value of the forward-starting swaps; an increase of $1.8 million in Straight-line ground rent liability due to additional Operating Assets placed in service during the year.

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Table of Contents

THE HOWARD HUGHES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12  INTANGIBLES

The following table summarizes our intangible assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2017

 

As of December 31, 2016

 

 

Gross

 

Accumulated

 

Net

 

Gross

 

Accumulated

 

Net

 

 

Asset

 

(Amortization)

 

Carrying

 

Asset

 

(Amortization)

 

Carrying

(In thousands)

    

(Liability)

    

/ Accretion

    

Amount

 

(Liability)

    

/ Accretion

    

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intangible Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Indefinite lived intangibles

 

$

25,028

 

$

 —

 

$

25,028

 

$

 —

 

$

 —

 

$

 —

Goodwill

 

 

1,307

 

 

 —

 

 

1,307

 

 

1,307

 

 

 —

 

 

1,307

Other intangibles

 

 

10,278

 

 

(1,812)

 

 

8,466

 

 

3,038

 

 

(299)

 

 

2,739

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant leases:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In-place value

 

 

22,304

 

 

(11,483)

 

 

10,821

 

 

37,567

 

 

(21,552)

 

 

16,015

Above-market

 

 

4,171

 

 

(2,523)

 

 

1,648

 

 

4,879

 

 

(2,422)

 

 

2,457

Below-market

 

 

(6,454)

 

 

2,688

 

 

(3,766)

 

 

(6,618)

 

 

2,065

 

 

(4,553)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ground leases:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Above-market

 

 

(293)

 

 

 —

 

 

(293)

 

 

(1,955)

 

 

193

 

 

(1,762)

Below-market

 

 

23,096

 

 

(4,449)

 

 

18,647

 

 

23,096

 

 

(4,110)

 

 

18,986

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total indefinite lived intangibles

 

 

 

 

 

 

 

 

26,335

 

 

 

 

 

 

 

 

1,307

Total amortizing intangibles

 

 

 

 

 

 

 

 

35,523

 

 

 

 

 

 

 

 

33,882

The tenant in-place, above-market and below-market lease intangible assets and the above-market and below-market ground lease intangible assets resulted from real estate acquisitions. The in‑place value, above-market value of tenant leases and below-market ground lease are included in Prepaid expenses and other assets in our Consolidated Balance Sheets and are amortized over periods that approximate the related lease terms. The above‑market ground lease and below‑market tenant leases are included in Accounts payable and accrued expenses as detailed in Note 11 – Other Assets and Other Liabilities and are amortized over the remaining non‑cancelable terms of the respective leases.

Amortization/accretion of these intangible assets and liabilities decreased our pre-tax income (excluding the impact of noncontrolling interest and the provision for income taxes) by $8.9 million in 2017, $6.3 million in 2016 and $10.5 million in 2015.

Future amortization/accretion is estimated to decrease pre-tax income (excluding the impact of noncontrolling interest and the provision for income taxes) by $5.0 million in 2018, $3.7 million in 2019, $2.3 million in 2020, $1.7 million in 2021 and $22.9 million thereafter.

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Table of Contents

THE HOWARD HUGHES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13  DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

We are exposed to interest rate risk related to our variable interest rate debt, and we manage this risk by utilizing interest rate derivatives. To add stability to interest costs by reducing our exposure to interest rate movements, we use interest rate swaps and caps as part of our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for our fixed‑rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up‑front premium. Our interest rate caps are not currently designated as hedges, and therefore, any gain or loss is recognized in current period earnings. These derivatives are recorded on a gross basis at fair value.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Accumulated Other Comprehensive Income (“AOCI”) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings in Other (loss) income, net. During the year ended December 31, 2017, the ineffective portion is $0.7 million. During the years ended December 31, 2016 and 2015, the ineffective portion recorded in earnings was insignificant.

Assessments of hedge effectiveness are performed quarterly using regression analysis and the measurement of hedge ineffectiveness is based on the hypothetical derivative method. We are exposed to credit risk in the event of non-performance by our derivative counterparties. We evaluate counterparty credit risk through monitoring the creditworthiness of counterparties, which includes review of debt ratings and financial performance. To mitigate its credit risk, we enter into agreements with counterparties we consider credit-worthy, such as large financial institutions with favorable credit ratings. As of December 31, 2017 and 2016, there were no termination events or events of default related to the interest rate swaps.

If the derivative contracts are terminated prior to their maturity, the amounts previously recorded in AOCI are recognized into earnings over the period that the hedged transaction impacts earnings. If the hedging relationship is discontinued because it is probable that the forecasted transaction will not occur according to the original strategy, any related amounts previously recorded in AOCI are recognized in earnings immediately.

The following table summarizes details related to our derivative contracts:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed

 

 

 

 

 

Fair Value Asset (Liability)

 

 

 

 

 

Notional

 

Interest

 

Effective

 

Maturity

 

December 31, 

 

December 31,

(In thousands)

 

    

Balance Sheet Location

    

Amount

    

Rate

    

Date

    

Date

    

2017

    

2016

Currently-paying contracts:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Rate Swap

(a)

 

Accounts payable and accrued expenses

 

$

18,926

 

2.96

%

 

5/10/2011

 

10/31/2019

 

$

(286)

 

$

(740)

Interest Rate Swap

(a)

 

Prepaid expenses and other assets, net

 

 

40,000

 

1.66

 

 

5/6/2015

 

5/1/2020

 

 

299

 

 

(143)

Interest Rate Swap

(a)

 

Prepaid expenses and other assets, net

 

 

119,359

 

1.14

 

 

10/3/2016

 

9/12/2021

 

 

4,007

 

 

3,368

Interest Rate Cap

(b)

 

Prepaid expenses and other assets, net

 

 

75,000

 

5.00

 

 

9/1/2017

 

8/31/2019

 

 

 —

 

 

 —

Interest Rate Cap

(c)

 

Prepaid expenses and other assets, net

 

 

230,000

 

2.50

 

 

12/22/2016

 

12/23/2019

 

 

164

 

 

768

Interest Rate Swap

(a) (d)

 

Accounts payable and accrued expenses

 

 

50,000

 

2.65

 

 

12/31/2017

 

12/31/2027

 

 

(1,124)

 

 

(610)

Interest Rate Swap

(a) (d)

 

Accounts payable and accrued expenses

 

 

100,000

 

2.68

 

 

12/31/2017

 

12/31/2027

 

 

(2,509)

 

 

(1,479)

Interest Rate Swap

(a) (d)

 

Accounts payable and accrued expenses

 

 

100,000

 

2.62

 

 

12/31/2017

 

12/31/2027

 

 

(2,042)

 

 

(1,015)

Total fair value derivative assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

4,470

 

$

4,136

Total fair value derivative liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(5,961)

 

$

(3,987)

(a)

Denotes derivatives designated as hedging instruments.

(b)

As of December 31, 2016, our $100.0 million interest rate cap with a 5.00% interest rate and an August 31, 2017 maturity date was in place and matured as scheduled. A new interest rate cap was entered into as detailed above and is not currently designated as a hedging instrument. Interest (income) expense included in the consolidated statements of operations for the year ended December 31, 2017 related to this contract is not material.

(c)

Denotes derivative contract that is not designated as a hedging instrument as of December 31, 2017. Interest (income) expense of $(0.6) million is included in the consolidated statements of operations for the year ended December 31, 2017, related to this contract.

(d)

Forward starting swaps were entered into in December 2015 and became effective as of December 31, 2017.

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THE HOWARD HUGHES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The tables below present the effect of our derivative financial instrument on the Consolidated Statements of Operations for the years ended December 31, 2017, 2016 and 2015:

 

 

 

 

 

 

 

 

 

 

 

 

Amount of Loss Recognized

 

 

in AOCI on Derivative

 

 

(Effective Portion)

 

 

Year Ended December 31, 

Derivatives in Cash Flow Hedging Relationships

 

2017

 

2016

 

2015

Interest rate swaps

 

$

(726)

 

$

831

 

$

(1,705)

 

 

 

 

 

 

 

 

 

 

 

 

Amount of Loss Reclassified from

 

 

AOCI into Operations

 

 

(Effective Portion)

 

 

Year Ended December 31, 

Location of Loss Reclassified from AOCI into Operations

 

2017

 

2016

 

2015

Interest expense

 

$

(905)

 

$

(1,364)

 

$

(1,745)

NOTE 14  ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following tables summarizechanges in Accumulated Other Comprehensive Income (Loss) by component, all of which are presented net of tax:

Balance as of January 1, 2016

$

(7,889)

Other comprehensive income (loss) before reclassifications

(261)

Loss reclassified from accumulated other comprehensive loss to net income

1,364

Net current-period other comprehensive income (loss)

1,103

Balance as of December 31, 2016

(6,786)

Other comprehensive income (loss) before reclassifications

(1,084)

Loss reclassified from accumulated other comprehensive loss to net income

905

Net current-period other comprehensive income (loss)

(179)

Balance as of December 31, 2017

$

(6,965)

The following table summarizes the amounts reclassified out of AOCI:

 

 

 

 

 

 

 

 

 

 

 

 

 

Amounts reclassified from Accumulated Other Comprehensive Income (Loss)

Accumulated Other Comprehensive Income (Loss) Components

 

Affected line items in the

 

For the Year Ended 

(In thousands)

 

Statements of Operations

 

December 31, 2017

   

December 31, 2016

Losses on cash flow hedges

 

Interest expense

 

$

1,443

 

$

2,175

 

 

Provision for income taxes

 

 

(538)

 

 

(811)

Total reclassifications for the period

 

Net of tax

 

$

905

 

$

1,364

NOTE 15  STOCK BASED PLANS

On November 9, 2010 (the “Effective Date”), HHC adopted The Howard Hughes Corporation Amended and Restated 2010 Incentive Plan (the “Incentive Plan”). Pursuant to the Incentive Plan,  3,698,050 shares of HHC common stock were reserved for issuance. New shares are issued on exercise of options. The Incentive Plan provides for grants of options, stock appreciation rights, restricted stock, other stock‑based awards and market‑based compensation (collectively, “the Awards”). Directors, employees and consultants of HHC and its subsidiaries and affiliates are eligible for awards. The Incentive Plan is administered by the Compensation Committee of the Board of Directors (“Committee”). Option grant amounts are awarded by the Committee.

Compensation costs for share‑based payment arrangements totaled $8.4 million, $9.4 million and $9.8 million, of which $1.1 million, $2.6 million and $2.5 million were capitalized for 2017, 2016, and 2015, respectively. As of December 31, 2017, there were a maximum of 2,032,473 shares available for future grant under our various stock plans.

F-40

Table of Contents

THE HOWARD HUGHES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock Options

The following tables summarize stock option activity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average

 

Aggregate

 

 

 

 

Weighted Average

 

Remaining

 

Intrinsic

 

    

Shares

    

Exercise Price

    

Contractual Term

    

Value

 

 

 

 

 

 

 

(In years)

 

 

Stock options outstanding at January 1, 2015

 

1,046,490

 

$

72.61

 

 

 

 

Granted

 

117,000

 

 

134.24

 

 

 

 

Exercised

 

 —

 

 

 —

 

 

 

 

Forfeited

 

(77,450)

 

 

103.84

 

 

 

 

Expired

 

 —

 

 

 —

 

 

 

 

Stock options outstanding at December 31, 2015

 

1,086,040

 

$

77.11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

162,100

 

$

109.42

 

 

 

 

Exercised

 

(3,000)

 

 

60.33

 

 

 

 

Forfeited

 

(68,500)

 

 

122.93

 

 

 

 

Expired

 

 —

 

 

 —

 

 

 

 

Stock options outstanding at December 31, 2016

 

1,176,640

 

$

78.87

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

58,000

 

$

119.85

 

 

 

 

Exercised

 

(395,482)

 

 

58.81

 

 

 

 

Forfeited

 

(54,976)

 

 

105.17

 

 

 

 

Expired

 

(1,000)

 

 

57.77

 

 

 

 

Stock options outstanding at December 31, 2017

 

783,182

 

$

90.22

 

5.7

 

33,454,510

 

 

 

 

 

 

 

 

 

 

Stock options exercisable at December 31, 2017

 

306,182

 

$

59.96

 

3.6

 

21,833,176

 

 

 

 

 

 

 

 

 

 

Stock options vested and expected to vest at December 31, 2017

 

772,990

 

$

59.96

 

5.7

 

33,302,071

Information related to stock options outstanding as of December 31, 2017 is summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average

 

 

 

 

 

 

 

 

 

 

 

 

 

Remaining

 

 

 

 

 

 

 

 

Number

 

Weighted Average

 

Contractual Term

 

Number

Range of Exercise Prices

    

Outstanding

    

Exercise Price

    

(In years)

    

Exercisable

$

46.49

 

$

55.82

 

23,290

 

$

51.39

 

3.7

 

23,290

$

57.77

 

$

60.33

 

242,418

 

 

58.06

 

3.3

 

242,418

$

61.64

 

$

69.75

 

109,550

 

 

65.93

 

4.4

 

29,550

$

81.80

 

$

110.50

 

94,424

 

 

98.13

 

6.1

 

9,024

$

112.64

 

$

151.72

 

313,500

 

 

124.07

 

8.0

 

1,900

 

 

 

 

 

 

783,182

 

$

90.22

 

5.7

 

306,182

The fair value on the grant date and the significant assumptions used in the Black‑Scholes option‑pricing model are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31,

 

 

    

2017

 

    

2016

 

    

2015

 

Grant date fair value

 

$

34.51

 

 

$

36.55

 

 

$

44.45

 

Expected life of options (in years)

 

 

8.4

 

 

 

7.4

 

 

 

7.5

 

Risk-free interest rate

 

 

2.2

%

 

 

1.8

%

 

 

2.0

%

Expected volatility

 

 

22.8

%

 

 

33.1

%

 

 

26.1

%

Expected annual dividend per share

 

 

 —

 

 

 

 —

 

 

 

 —

 

The computation of the expected volatility assumption used in the Black‑Scholes calculations is based on the median asset volatility of comparable companies as of each of the grant dates.

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Table of Contents

THE HOWARD HUGHES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Generally, options granted vest over requisite service periods or on a graduated scale based on total shareholder returns, expire ten years after the grant date and generally do not become exercisable until their restrictions on exercise lapses after the five –year anniversary of the grant date. For options that vest based on shareholder returns, the grant date fair values are calculated using a Monte-Carlo approach which simulates our stock price on the corresponding vesting dates before applying the Black-Scholes model.

The balance of unamortized stock option expense as of December 31, 2017 is $7.9 million, which is expected to be recognized over a weighted‑average period of 3.0 years. Net of amounts capitalized relating to our developments, $1.6 million, $2.9 million and $2.6 million for the years ended December 31, 2017, 2016 and 2015, respectively, of expense associated with stock options are included in General and administrative expense in the accompanying Consolidated Statements of Operations.

Restricted Stock

Restricted stock awards issued under the Incentive Plan provide that shares awarded may not be sold or otherwise transferred until restrictions have lapsed as established by the Committee. In addition to the granting of restricted stock to certain members of management, we award restricted stock to our non‑employee directors as part of their annual retainer. The management awards vest over five years, and the restriction on the non‑employee director shares lapse on the date of our annual meeting of shareholders, or June 1st of the award year, whichever is earlier.

Generally, upon termination of employment or directorship, restricted stock units and restricted shares which have not vested are forfeited.

The following table summarizes restricted stock activity:

 

 

 

 

 

 

 

 

Weighted Average

 

 

Grant Date

 

    

Shares

    

Fair Value

 

 

 

 

 

 

Restricted stock outstanding at January 1, 2015

 

172,690

 

$

121.81

Granted

 

81,581

 

 

121.81

Vested

 

(7,546)

 

 

147.56

Forfeited

 

(4,169)

 

 

101.33

Restricted stock outstanding at December 31, 2015

 

242,556

 

$

100.15

 

 

 

 

 

 

Granted

 

136,198

 

$

67.80

Vested

 

(37,670)

 

 

83.47

Forfeited

 

(51,972)

 

 

90.14

Restricted stock outstanding at December 31, 2016

 

289,112

 

$

88.88

 

 

 

 

 

 

Granted

 

177,385

 

$

85.81

Vested

 

(68,819)

 

 

88.58

Forfeited

 

(43,482)

 

 

76.10

Restricted stock outstanding at December 31, 2017

 

354,196

 

$

88.97

The grant date fair value of the restricted stock is based on the closing sales price of our common stock on the grant date. For restricted stock awards that vest based on shareholder returns, the grant date fair values are calculated using a Monte-Carlo approach which simulates our stock price on the corresponding vesting dates before applying the Black-Scholes model.

Net of amounts capitalized relating to our developments, we recognized compensation expense of $5.7 million, $4.5 million and $4.7 million for the years ended December 31, 2017, 2016 and 2015, respectively, included in General and Administrative expense related to restricted stock awards in the accompanying Consolidated Statements of Operations. The fair value of restricted stock that vested during 2017 was $8.9 million. The balance of unamortized restricted stock expense as of December 31, 2017 was $20.3 million, which is expected to be recognized over a weighted‑average period of 4.2 years.

F-42

Table of Contents

THE HOWARD HUGHES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16  RENTALS UNDER OPERATING LEASES

We receive rental income from the leasing of retail, office, multi-family and other space under operating leases. Such operating leases are with a variety of tenants. The minimum future rentals based on operating leases of our consolidated properties held as of December 31, 2017 are as follows:

 

 

 

 

 

 

Total

 

 

Minimum

Year

    

Rent

 

 

(In thousands)

2018

 

$

160,878

2019

 

 

173,404

2020

 

 

163,048

2021

 

 

166,703

2022

 

 

165,703

Subsequent

 

 

1,027,115

Total

 

$

1,856,851

Minimum future rentals exclude amounts which are payable by certain tenants based upon a percentage of their gross sales or as reimbursement of operating expenses and amortization of above-market and below‑market tenant leases.

Percentage rent in lieu of fixed minimum rent recognized from tenants for the years ended December 31, 2017, 2016 and 2015 was $1.5 million, $2.4 million and $3.5 million, respectively.

Overage rent of approximately $2.8 million, $3.6 million, and $3.6 million for 2017, 2016 and 2015, respectively, are included in Other rental and property revenues in our Consolidated Statements of Operations.

NOTE 17  SEGMENTS

We have three business segments whichthat offer different products and services. Our threeHHC’s four segments are managed separately because each requires different operating strategies or management expertise and are reflective of management’s operating philosophies and methods. In addition, ourAs further discussed in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, one common operating measure used to assess operating results for the Company’s business segments is earnings before taxes (EBT). The Company’s segments or assets within such segments could change in the future as development of certain properties commences or other operational or management changes occur. We do not distinguish or group our combined operations on a geographic basis. Furthermore, allAll operations are within the United States. OurThe Company’s reportable segments are as follows:

·

Master Planned Communities – includes the development and sale of land, in large‑scale, long‑term community development projects in and around Las Vegas, Nevada; Houston, Texas; and Columbia, Maryland.

·

Operating Assets – includes retail, office, hospitality and multi-family properties along with other real estate investments. These assets are currently generating revenues, and are comprised of commercial real estate properties recently developed or acquired by us, and properties where we believe there is an opportunity to redevelop, reposition, or sell to improve segment performance or to recycle capital.

–Operating Assets – consists of developed or acquired retail, office and multi-family properties along with other real estate investments. These properties are currently generating revenues and may be redeveloped, repositioned or sold to improve segment performance or to recycle capital.

·

Strategic Developments – includes our residential condominium and commercial property projects currently under development and all other properties held for development which have no substantial operations.

Effective January 1, 2017, we moved–MPC – consists of the Seaport District NYC assets under constructiondevelopment and related activities tosale of land in large‑scale, long‑term community development projects in and around Las Vegas, Nevada; Houston, Texas; Phoenix, Arizona; and Columbia, Maryland.

–Seaport – consists of approximately 473,000 square feet of restaurant, retail and entertainment properties situated in three primary locations in New York, New York: Pier 17, Historic Area/Uplands and Tin Building as well as the 250 Water Street development, and equity interest in Jean-Georges Restaurants.
–Strategic Developments segment from the Operating Assets segment. Seaport District NYC operating – consists of residential condominium and commercial property projects currently under development and all other properties and related operating results remain presented within the Operating Assets segment. The respective segment earnings and total segment assets presented in our financial statements and elsewhere in this Annual Reportheld for development which have been adjusted in all periods reported to reflect this change.

no substantial operations.

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Table of Contents

THE HOWARD HUGHES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Segment operating results are as follows:

thousandsOperating Assets Segment (a)MPC SegmentSeaport SegmentStrategic Developments SegmentTotal
Year ended December 31, 2022
Total revenues$431,834 $408,365 $88,468 $679,763 $1,608,430 
Total operating expenses(194,496)(173,905)(104,393)(504,036)(976,830)
Segment operating income (loss)237,338 234,460 (15,925)175,727 631,600 
Depreciation and amortization(154,626)(394)(36,338)(5,319)(196,677)
Interest income (expense), net(89,959)50,305 3,902 17,073 (18,679)
Other income (loss), net(1,140)23 245 1,799 927 
Equity in earnings (losses) from unconsolidated ventures22,263 (1,407)(36,273)868 (14,549)
Gain (loss) on sale or disposal of real estate and other assets, net29,588 — — 90 29,678 
Gain (loss) on extinguishment of debt(2,230)— — — (2,230)
Segment EBT$41,234 $282,987 $(84,389)$190,238 $430,070 
Corporate income, expenses and other items(245,434)
Net income (loss)184,636 
Net (income) loss attributable to noncontrolling interests(103)
Net income (loss) attributable to common stockholders$184,533 
HHC 2022 FORM 10-K | 109
FINANCIAL STATEMENTS
FOOTNOTES
Table of Contents
Index to Financial Statements
thousandsOperating Assets Segment (a)MPC SegmentSeaport SegmentStrategic Developments SegmentTotal
Year Ended December 31, 2021
Total revenues$442,698 $409,746 $55,008 $520,109 $1,427,561 
Total operating expenses(209,020)(193,851)(77,198)(436,698)(916,767)
Segment operating income (loss)233,678 215,895 (22,190)83,411 510,794 
Depreciation and amortization(163,031)(366)(30,867)(6,512)(200,776)
Interest income (expense), net(75,391)42,683 357 3,701 (28,650)
Other income (loss), net(10,746)— (3,730)2,536 (11,940)
Equity in earnings (losses) from unconsolidated ventures(67,042)59,399 (1,988)(221)(9,852)
Gain (loss) on sale or disposal of real estate and other assets, net39,168 — — 13,911 53,079 
Gain (loss) on extinguishment of debt(1,926)(1,004)— — (2,930)
Provision for impairment— — — (13,068)(13,068)
Segment EBT$(45,290)$316,607 $(58,418)$83,758 $296,657 
Corporate income, expenses and other items(247,733)
Net income (loss)48,924 
Net (income) loss attributable to noncontrolling interests7,176 
Net income (loss) attributable to common stockholders$56,100 
Year Ended December 31, 2020
Total revenues$372,057 $283,953 $23,814 $19,407 $699,231 
Total operating expenses(185,480)(128,597)(46,112)(135,160)(495,349)
Segment operating income (loss)186,577 155,356 (22,298)(115,753)203,882 
Depreciation and amortization(162,324)(365)(41,602)(6,545)(210,836)
Interest income (expense), net(91,411)36,587 (12,512)6,312 (61,024)
Other income (loss), net540 — (2,616)2,165 89 
Equity in earnings (losses) from unconsolidated ventures(7,366)17,845 (9,292)269,912 271,099 
Gain (loss) on sale or disposal of real estate and other assets, net38,232 — — 21,710 59,942 
Gain (loss) on extinguishment of debt(1,521)— (11,648)— (13,169)
Provision for impairment(48,738)— — — (48,738)
Segment EBT$(86,011)$209,423 $(99,968)$177,801 $201,245 
Corporate income, expenses and other items(204,418)
Net income (loss)(3,173)
Net (income) loss attributable to noncontrolling interests(22,981)
Net income (loss) attributable to common stockholders$(26,154)
(a)Total revenues includes hospitality revenues of $35.6 million for the yearsyear ended December 31, 2017, 20162021, and 2015 are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31, 

(In thousands)

 

2017

    

2016

    

2015

Master Planned Communities

 

 

 

 

 

 

 

 

 

Land sales

 

$

248,595

 

$

215,318

 

$

187,399

Builder price participation

 

 

22,835

 

 

21,386

 

 

26,846

Minimum rents

 

 

(8)

 

 

384

 

 

797

Other land revenues

 

 

28,124

 

 

16,192

 

 

14,778

Other rental and property revenues

 

 

(3)

 

 

24

 

 

45

Total revenues

 

 

299,543

 

 

253,304

 

 

229,865

 

 

 

 

 

 

 

 

 

 

Cost of sales – land

 

 

121,116

 

 

95,727

 

 

88,065

Land sales operations

 

 

38,777

 

 

42,371

 

 

44,907

Provision for doubtful accounts

 

 

 2

 

 

 —

 

 

 —

Depreciation and amortization

 

 

323

 

 

311

 

 

640

Other income, net

 

 

(3,500)

 

 

 —

 

 

 —

Interest income

 

 

(4)

 

 

(59)

 

 

(60)

Interest expense (*)

 

 

(24,288)

 

 

(21,026)

 

 

(18,053)

Equity in (earnings) loss in Real Estate and Other Affiliates

 

 

(23,234)

 

 

(43,501)

 

 

 —

Total expenses

 

 

109,192

 

 

73,823

 

 

115,499

MPC segment EBT

 

 

190,351

 

 

179,481

 

 

114,366

 

 

 

 

 

 

 

 

 

 

Operating Assets

 

 

 

 

 

 

 

 

 

Minimum rents

 

 

182,468

 

 

172,437

 

 

149,064

Tenant recoveries

 

 

45,366

 

 

44,306

 

 

39,415

Hospitality revenues

 

 

76,020

 

 

62,252

 

 

45,374

Other rental and property revenues

 

 

23,701

 

 

16,170

 

 

25,453

Total revenues

 

 

327,555

 

 

295,165

 

 

259,306

 

 

 

 

 

 

 

 

 

 

Other property operating costs

 

 

71,748

 

 

60,506

 

 

68,078

Rental property real estate taxes

 

 

26,523

 

 

24,439

 

 

21,856

Rental property maintenance costs

 

 

12,872

 

 

12,033

 

 

10,236

Hospitality operating costs

 

 

56,362

 

 

49,359

 

 

34,839

Provision for doubtful accounts

 

 

2,710

 

 

5,601

 

 

3,998

Demolition costs

 

 

1,605

 

 

194

 

 

2,412

Provision for impairment

 

 

 —

 

 

35,734

 

 

 —

Development-related marketing costs

 

 

3,346

 

 

947

 

 

7,934

Depreciation and amortization

 

 

122,421

 

 

86,313

 

 

89,075

Other income, net

 

 

315

 

 

(4,601)

 

 

(524)

Interest income

 

 

(22)

 

 

(19)

 

 

(37)

Interest expense (*)

 

 

61,606

 

 

50,446

 

 

32,968

Equity in (earnings) loss in Real Estate and Other Affiliates

 

 

(3,267)

 

 

(2,802)

 

 

(1,883)

Total expenses

 

 

356,219

 

 

318,150

 

 

268,952

Operating Assets segment EBT

 

 

(28,664)

 

 

(22,985)

 

 

(9,646)

 

 

 

 

 

 

 

 

 

 

Strategic Developments

 

 

 

 

 

 

 

 

 

Minimum rents

 

 

565

 

 

447

 

 

899

Tenant recoveries

 

 

448

 

 

24

 

 

127

Condominium rights and unit sales

 

 

464,251

 

 

485,634

 

 

305,284

Other land revenues

 

 

42

 

 

40

 

 

25

Other rental and property revenues

 

 

7,716

 

 

391

 

 

1,582

Total revenues

 

 

473,022

 

 

486,536

 

 

307,917

 

 

 

 

 

 

 

 

 

 

Condominium rights and unit cost of sales

 

 

338,361

 

 

319,325

 

 

191,606

Other property operating costs

 

 

19,981

 

 

5,472

 

 

4,673

Rental property real estate taxes

 

 

2,662

 

 

2,408

 

 

2,282

Rental property maintenance costs

 

 

560

 

 

359

 

 

476

Provision for (recovery of) doubtful accounts

 

 

(2)

 

 

63

 

 

32

Demolition costs

 

 

318

 

 

2,018

 

 

885

Development-related marketing costs

 

 

17,158

 

 

21,237

 

 

17,532

Depreciation and amortization

 

 

1,210

 

 

2,744

 

 

3,240

Other income, net

 

 

(108)

 

 

(611)

 

 

104

Interest income

 

 

(187)

 

 

(500)

 

 

(202)

Interest expense (*)

 

 

(25,280)

 

 

(16,937)

 

 

(8,453)

Equity in (earnings) loss in Real Estate and Other Affiliates

 

 

550

 

 

(10,515)

 

 

(1,838)

Gains on sales of properties

 

 

(51,242)

 

 

(140,549)

 

 

 —

Total expenses

 

 

303,981

 

 

184,514

 

 

210,337

Strategic Developments segment EBT

 

 

169,041

 

 

302,022

 

 

97,580

Total consolidated segment EBT

 

$

330,728

 

$

458,518

 

$

202,300

$35.2 million for the year ended December 31, 2020. Total operating expenses includes hospitality operating costs of $30.5 million for the year ended December 31, 2021, and $32.3 million for the year ended December 31, 2020. In September 2021, the Company completed the sale of its three hospitality properties. Refer to Note 3 - Acquisitions and Dispositions for additional information.

(*) Negative interest expense amounts are due to interest capitalized in our MPC and Strategic Developments segments related to Operating Assets segment debt and the Senior Notes.


F-44

Table of Contents

THE HOWARD HUGHES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following reconciles EBT to GAAP income (loss) before taxes:

 

 

 

 

 

 

 

 

 

 

Reconciliation of  EBT to income before taxes

 

Year Ended December 31, 

(In thousands)

 

2017

    

2016

    

2015

MPC segment EBT

 

$

190,351

 

$

179,481

 

$

114,366

Operating Assets segment EBT

 

 

(28,664)

 

 

(22,985)

 

 

(9,646)

Strategic Developments segment EBT

 

 

169,041

 

 

302,022

 

 

97,580

Total consolidated segment EBT

 

 

330,728

 

 

458,518

 

 

202,300

Corporate and other items:

 

 

 

 

 

 

 

 

 

General and administrative

 

 

(89,882)

 

 

(86,588)

 

 

(81,345)

Corporate interest expense, net

 

 

(48,700)

 

 

(52,460)

 

 

(52,995)

Warrant liability (loss) gain

 

 

(43,443)

 

 

(24,410)

 

 

58,320

Gain on acquisition of joint venture partner's interest

 

 

23,332

 

 

27,088

 

 

 —

Gain (loss) on disposal of operating assets

 

 

3,868

 

 

(1,117)

 

 

29,073

Corporate Gains on sales of properties

 

 

125

 

 

 —

 

 

 —

Equity in earnings in Real Estate and Other Affiliates

 

 

(453)

 

 

 —

 

 

 —

Loss on redemption of senior notes due 2021

 

 

(46,410)

 

 

 —

 

 

 —

Corporate other (expense) income, net

 

 

(45)

 

 

6,241

 

 

1,409

Corporate depreciation and amortization

 

 

(8,298)

 

 

(6,496)

 

 

(6,042)

Total Corporate and other items

 

 

(209,906)

 

 

(137,742)

 

 

(51,580)

Income before taxes

 

$

120,822

 

$

320,776

 

$

150,720

The following reconciles segment revenues to GAAP consolidated revenues:

 

 

 

 

 

 

 

 

 

 

Reconciliation of Segment Basis Revenues to Revenues

 

Year Ended December 31, 

(In thousands)

 

2017

    

2016

    

2015

Master Planned Communities

 

$

299,543

 

$

253,304

 

$

229,865

Operating Assets

 

 

327,555

 

 

295,165

 

 

259,306

Strategic Developments

 

 

473,022

 

 

486,536

 

 

307,917

Total revenues

 

$

1,100,120

 

$

1,035,005

 

$

797,088

Therepresents assets by segment and the reconciliation of total segment assets to the total assets in the Consolidated Balance Sheets are summarized as follows:

 

 

 

 

 

 

 

 

 

December 31, 

(In thousands)

 

2017

    

2016

Master Planned Communities

 

$

1,999,090

 

$

1,982,639

Operating Assets

 

 

2,489,177

 

 

2,344,949

Strategic Developments

 

 

1,511,612

 

 

1,451,460

Total segment assets

 

 

5,999,879

 

 

5,779,048

Corporate and other

 

 

729,185

 

 

588,334

Total assets

 

$

6,729,064

 

$

6,367,382

The increase in the Operating Assets segment asset balance as of December 31, 2017 compared to 2016 is primarily due to placing One and Two Merriweather, 31:

thousands20222021
Operating Assets$3,448,823 $3,607,718 
Master Planned Communities3,272,655 3,056,240 
Seaport1,166,950 1,046,992 
Strategic Developments1,359,180 1,193,549 
Total segment assets9,247,608 8,904,499 
Corporate355,855 677,195 
Total assets$9,603,463 $9,581,694 

HHC 242 and HHC 2978 Self-Storage in service as well as the acquisitions of our joint venture partners’ 50% interests in the Las Vegas 51s and Constellation, respectively, partially offset by the transfers of Landmark Mall, a portion of Ward Village Retail and our investment in 33 Peck Slip to Strategic Developments in 2017.

The increase in the Strategic Developments segment asset balance as of December 31, 2017 compared to December 31, 2016 relates to transfers of Landmark Mall and 33 Peck Slip into the segment along with increased development expenditures primarily in the Seaport District and at our Ward condominium projects under construction. Ongoing predevelopment activities at various other projects also contributed to the increase, partially offset by the partial sale of The Elk Grove Collection and placing various assets in service. 

The increase in the Corporate and other asset balance as of December 31, 2017 compared to December 31, 2016 is primarily due to net proceeds received from the issuance of the 2025 Notes in March 2017.

2022 FORM 10-K | 110

F-45

Table of Contents

THE HOWARD HUGHES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 18  QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2017

 

 

First

 

Second

 

Third

 

Fourth

(In thousands, except share amounts)

    

Quarter

    

Quarter

    

Quarter

    

Quarter

Total revenues

 

$

231,762

 

$

308,639

 

$

258,736

 

$

300,983

Operating income

 

 

77,554

 

 

54,133

 

 

24,372

 

 

62,443

Net income

 

 

5,659

 

 

3,120

 

 

10,516

 

 

147,328

Net income attributable to common stockholders

 

 

5,659

 

 

3,120

 

 

10,504

 

 

149,121

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

0.14

 

 

0.08

 

 

0.25

 

 

3.48

Diluted (a)

 

 

0.13

 

 

0.07

 

 

0.24

 

 

3.46

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

39,799

 

 

40,373

 

 

42,845

 

 

42,860

Diluted

 

 

42,757

 

 

43,051

 

 

43,267

 

 

43,120

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2016

 

 

First

 

Second

 

Third

 

Fourth

(In thousands, except share amounts)

   

Quarter

    

Quarter

    

Quarter

    

Quarter

Total revenues

 

$

240,680

 

$

273,514

 

$

242,265

 

$

278,546

Operating income

 

 

192,970

 

 

73,636

 

 

784

 

 

59,372

Net income

 

 

143,765

 

 

6,970

 

 

7,996

 

 

43,595

Net income attributable to common stockholders

 

 

143,765

 

 

6,970

 

 

7,973

 

 

43,595

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

3.64

 

 

0.18

 

 

0.20

 

 

1.10

Diluted (a)

 

 

2.69

 

 

0.16

 

 

0.19

 

 

1.02

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

39,473

 

 

39,492

 

 

39,502

 

 

39,502

Diluted

 

 

42,400

 

 

42,664

 

 

42,760

 

 

42,753

a)

Diluted earnings per share includes the impact

FINANCIAL STATEMENT SCHEDULE
Table of warrants, in the money options and restricted stock. Net income used in the calculation of EPS was also adjusted for the warrant gain during the period, where applicable.

Contents
Index to Financial Statements

F-46

Table of Contents

SCHEDULE III – REAL ESTATE AND ACCUMULATED DEPRECIATION

DECEMBER 31, 2017

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Initial Cost (b)

 

Costs Capitalized Subsequent to Acquisition (c)

 

Gross Amounts at Which Carried at Close of Period (d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Buildings

 

 

 

 

Buildings

 

 

 

 

Buildings

 

 

 

 

 

 

 

 

 

Date

 

 

 

 

 

 

 

 

 

 

and

 

 

 

 

and

 

 

 

 

and

 

 

 

 

Accumulated

 

Date of

 

Acquired /

Name of Center

    

Location

 

Encumbrances (a)

 

Land

    

Improvements 

    

Land (e)

 

Improvements (e)(f)

 

Land

 

Improvements (f)

 

Total

 

Depreciation (g)

 

Construction

 

Completed

Bridgeland

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bridgeland

 

Cypress, TX

 

$

65,000

 

$

260,223

 

$

 —

 

$

198,685

 

$

1,960

 

$

458,908

 

$

1,960

 

$

460,868

 

$

(801)

 

 

 

2004

Lakeland Village Center at Bridgeland

 

Cypress, TX

 

 

11,470

 

 

2,404

 

 

11,135

 

 

 —

 

 

3,038

 

 

2,404

 

 

14,173

 

 

16,577

 

 

(335)

 

 

 

2016

Columbia

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

American City Building

 

Columbia, MD    

 

 

 —

 

 

 —

 

 

13,534

 

 

 —

 

 

 —

 

 

 —

 

 

13,534

 

 

13,534

 

 

 —

 

 

 

2016

Aristocrat

 

Columbia, MD    

 

 

 —

 

 

 —

 

 

15,313

 

 

 —

 

 

 —

 

 

 —

 

 

15,313

 

 

15,313

 

 

 —

 

2017

 

 

10 - 70 Columbia Corporate Center

 

Columbia, MD    

 

 

100,000

 

 

24,685

 

 

94,824

 

 

 —

 

 

18,680

 

 

24,685

 

 

113,504

 

 

138,189

 

 

(12,067)

 

 

 

2012/2014

Columbia Office Properties

 

Columbia, MD    

 

 

 —

 

 

1,175

 

 

14,913

 

 

 —

 

 

268

 

 

1,175

 

 

15,181

 

 

16,356

 

 

(4,527)

 

 

 

1969/1972

Columbia Regional Building

 

Columbia, MD    

 

 

25,000

 

 

 —

 

 

28,865

 

 

 —

 

 

2,223

 

 

 —

 

 

31,088

 

 

31,088

 

 

(3,213)

 

 

 

2014

Lakefront

 

Columbia, MD    

 

 

 —

 

 

 —

 

 

1,964

 

 

 —

 

 

 —

 

 

 —

 

 

1,964

 

 

1,964

 

 

 —

 

 

 

2004

Maryland Communities

 

Columbia, MD    

 

 

 —

 

 

457,552

 

 

 —

 

 

(440,924)

 

 

197

 

 

16,628

 

 

197

 

 

16,825

 

 

(150)

 

 

 

2004

Merriweather District Predevelopment

 

Columbia, MD    

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

76,808

 

 

 —

 

 

76,808

 

 

76,808

 

 

 —

 

 

 

2015

One Mall North

 

Columbia, MD

 

 

14,463

 

 

7,822

 

 

10,818

 

 

 —

 

 

 —

 

 

7,822

 

 

10,818

 

 

18,640

 

 

(335)

 

 

 

2016

One Merriweather

 

Columbia, MD    

 

 

42,332

 

 

1,433

 

 

58,936

 

 

 —

 

 

8,065

 

 

1,433

 

 

67,001

 

 

68,434

 

 

(1,396)

 

 

 

2017

Ridgely Building

 

Columbia, MD    

 

 

 —

 

 

400

 

 

58,937

 

 

 —

 

 

(58,937)

 

 

400

 

 

 —

 

 

400

 

 

 —

 

2017

 

 

Two Merriweather

 

Columbia, MD    

 

 

19,429

 

 

1,019

 

 

4,931

 

 

 —

 

 

25,691

 

 

1,019

 

 

30,622

 

 

31,641

 

 

(127)

 

 

 

2017

Seaport District

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Seaport Predevelopment

 

New York, NY

 

 

 —

 

 

 —

 

 

7,641

 

 

 —

 

 

581

 

 

 —

 

 

8,222

 

 

8,222

 

 

 —

 

2013

 

 

85 South Street

 

New York, NY

 

 

 —

 

 

15,913

 

 

8,137

 

 

 —

 

 

949

 

 

15,913

 

 

9,086

 

 

24,999

 

 

(1,985)

 

 

 

2014

Seaport District NYC - Tin Building

 

New York, NY

 

 

 —

 

 

 —

 

 

8,290

 

 

 —

 

 

5,022

 

 

 —

 

 

13,312

 

 

13,312

 

 

—

 

 

 

2015

Seaport District NYC - Pier 17

 

New York, NY

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

344,168

 

 

 —

 

 

344,168

 

 

344,168

 

 

 —

 

2017

 

 

Seaport District NYC Historic District / Uplands

 

New York, NY

 

 

 —

 

 

 —

 

 

7,884

 

 

 —

 

 

105,078

 

 

 —

 

 

112,962

 

 

112,962

 

 

(7,252)

 

2013

 

2016

Summerlin

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Constellation

 

Las Vegas, NV

 

 

24,200

 

 

3,069

 

 

39,759

 

 

 —

 

 

 —

 

 

3,069

 

 

39,759

 

 

42,828

 

 

 —

 

 

 

2016

Downtown Summerlin (h)

 

Las Vegas, NV

 

 

276,900

 

 

30,855

 

 

364,100

 

 

 —

 

 

25,484

 

 

30,855

 

 

389,584

 

 

420,439

 

 

(42,046)

 

 

 

2014

Downtown Summerlin Apartments

 

Las Vegas, NV

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

12,661

 

 

 —

 

 

12,661

 

 

12,661

 

 

 —

 

2017

 

 

Hockey Ground Lease

 

Las Vegas, NV

 

 

 —

 

 

 —

 

 

 —

 

 

4,710

 

 

2,156

 

 

4,710

 

 

2,156

 

 

6,866

 

 

(33)

 

2017

 

 

Las Vegas 51s

 

Las Vegas, NV

 

 

 —

 

 

 —

 

 

179

 

 

 —

 

 

 —

 

 

 —

 

 

179

 

 

179

 

 

(40)

 

 

 

2017

Las Vegas Ballpark

 

Las Vegas, NV

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

7,651

 

 

 —

 

 

7,651

 

 

7,651

 

 

 —

 

2017

 

 

Summerlin

 

Las Vegas, NV

 

 

24,764

 

 

990,179

 

 

 —

 

 

(137,946)

 

 

1,186

 

 

852,233

 

 

1,186

 

 

853,419

 

 

(660)

 

 

 

2004

Two Summerlin

 

Las Vegas, NV

 

 

 —

 

 

 —

 

 

18,676

 

 

 —

 

 

 —

 

 

 —

 

 

18,676

 

 

18,676

 

 

 —

 

2017

 

 

The Woodlands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Creekside Park Apartments

 

The Woodlands, TX

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

20,030

 

 

 —

 

 

20,030

 

 

20,030

 

 

 —

 

2017

 

 

Creekside Village Green

 

The Woodlands, TX

 

 

 —

 

 

 —

 

 

 —

 

 

1,323

 

 

16,263

 

 

1,323

 

 

16,263

 

 

17,586

 

 

(1,590)

 

 

 

2015

Embassy Suites at Hughes Landing

 

The Woodlands, TX

 

 

31,245

 

 

 —

 

 

6,752

 

 

1,818

 

 

36,117

 

 

1,818

 

 

42,869

 

 

44,687

 

 

(3,029)

 

 

 

2015

100 Fellowship Drive

 

The Woodlands, TX

 

 

 1

 

 

 —

 

 

 —

 

 

 —

 

 

21,691

 

 

 —

 

 

21,691

 

 

21,691

 

 

 —

 

2017

 

 

HHC 242 Self-Storage

 

The Woodlands, TX

 

 

6,243

 

 

878

 

 

6,802

 

 

 —

 

 

1,090

 

 

878

 

 

7,892

 

 

8,770

 

 

(208)

 

 

 

2017

HHC 2978 Self-Storage

 

The Woodlands, TX

 

 

5,634

 

 

124

 

 

5,498

 

 

 —

 

 

2,015

 

 

124

 

 

7,513

 

 

7,637

 

 

(160)

 

 

 

2017

One Hughes Landing

 

The Woodlands, TX

 

 

52,000

 

 

1,678

 

 

34,761

 

 

 —

 

 

 —

 

 

1,678

 

 

34,761

 

 

36,439

 

 

(6,287)

 

 

 

2013

Two Hughes Landing

 

The Woodlands, TX

 

 

48,000

 

 

1,269

 

 

34,950

 

 

 —

 

 

 —

 

 

1,269

 

 

34,950

 

 

36,219

 

 

(5,693)

 

 

 

2014

Three Hughes Landing

 

The Woodlands, TX

 

 

45,058

 

 

2,626

 

 

46,372

 

 

 —

 

 

21,638

 

 

2,626

 

 

68,010

 

 

70,636

 

 

(1,814)

 

 

 

2016

1725 Hughes Landing Boulevard

 

The Woodlands, TX

 

 

58,815

 

 

1,351

 

 

36,764

 

 

 —

 

 

30,252

 

 

1,351

 

 

67,016

 

 

68,367

 

 

(6,510)

 

 

 

2015

1735 Hughes Landing Boulevard

 

The Woodlands, TX

 

 

58,602

 

 

3,709

 

 

97,651

 

 

 —

 

 

 —

 

 

3,709

 

 

97,651

 

 

101,360

 

 

(9,292)

 

 

 

2015

Hughes Landing Retail

 

The Woodlands, TX

 

 

35,000

 

 

5,184

 

 

 —

 

 

 —

 

 

32,987

 

 

5,184

 

 

32,987

 

 

38,171

 

 

(3,145)

 

 

 

2015

1701 Lake Robbins

 

The Woodlands, TX

 

 

 —

 

 

1,663

 

 

3,725

 

 

 —

 

 

10

 

 

1,663

 

 

3,735

 

 

5,398

 

 

(320)

 

 

 

2014

Lake Woodlands Crossing Retail

 

The Woodlands, TX

 

 

 —

 

 

 —

 

 

6,525

 

 

 —

 

 

 —

 

 

 —

 

 

6,525

 

 

6,525

 

 

 —

 

2017

 

 

2201 Lake Woodlands Drive

 

The Woodlands, TX

 

 

 —

 

 

3,755

 

 

 —

 

 

 —

 

 

47

 

 

3,755

 

 

47

 

 

3,802

 

 

(5)

 

 

 

1994

One Lakes Edge

 

The Woodlands, TX

 

 

69,440

 

 

1,057

 

 

81,768

 

 

 —

 

 

 —

 

 

1,057

 

 

81,768

 

 

82,825

 

 

(5,784)

 

 

 

2015

Millennium Six Pines Apartments

 

The Woodlands, TX

 

 

42,500

 

 

4,000

 

 

54,624

 

 

7,225

 

 

 —

 

 

11,225

 

 

54,624

 

 

65,849

 

 

(2,819)

 

 

 

2014

Millennium Waterway Apartments

 

The Woodlands, TX

 

 

55,095

 

 

15,917

 

 

56,002

 

 

 —

 

 

1,394

 

 

15,917

 

 

57,396

 

 

73,313

 

 

(12,898)

 

 

 

2010

9303 New Trails

 

The Woodlands, TX

 

 

12,003

 

 

1,929

 

 

11,915

 

 

 —

 

 

601

 

 

1,929

 

 

12,516

 

 

14,445

 

 

(2,182)

 

 

 

2008

3831 Technology Forest Drive

 

The Woodlands, TX

 

 

21,954

 

 

514

 

 

14,194

 

 

 —

 

 

1,703

 

 

514

 

 

15,897

 

 

16,411

 

 

(2,435)

 

 

 

2014

The Westin at the Woodlands

 

The Woodlands, TX

 

 

57,946

 

 

22,473

 

 

 —

 

 

(20,520)

 

 

88,892

 

 

1,953

 

 

88,892

 

 

90,845

 

 

(5,229)

 

 

 

2016

The Woodlands

 

The Woodlands, TX

 

 

150,000

 

 

269,411

 

 

9,814

 

 

(63,362)

 

 

6,793

 

 

206,049

 

 

16,607

 

 

222,656

 

 

(3,098)

 

 

 

2011

The Woodlands Parking Garages

 

The Woodlands, TX

 

 

 —

 

 

5,857

 

 

 —

 

 

1,529

 

 

11,837

 

 

7,386

 

 

11,837

 

 

19,223

 

 

(1,126)

 

 

 

2008/2009

The Woodlands Resort & Conference Center

 

The Woodlands, TX

 

 

65,500

 

 

13,258

 

 

37,983

 

 

 —

 

 

76,801

 

 

13,258

 

 

114,784

 

 

128,042

 

 

(15,795)

 

 

 

2014

20/25 Waterway Avenue

 

The Woodlands, TX

 

 

13,646

 

 

2,346

 

 

8,871

 

 

 —

 

 

775

 

 

2,346

 

 

9,646

 

 

11,992

 

 

(2,122)

 

 

 

20072009

Waterway Garage Retail

 

The Woodlands, TX

 

 

 —

 

 

1,341

 

 

4,255

 

 

 —

 

 

1,411

 

 

1,341

 

 

5,666

 

 

7,007

 

 

(1,169)

 

 

 

2011

3 Waterway Square

 

The Woodlands, TX

 

 

50,327

 

 

748

 

 

 —

 

 

 —

 

 

42,329

 

 

748

 

 

42,329

 

 

43,077

 

 

(9,387)

 

 

 

2013

4 Waterway Square

 

The Woodlands, TX

 

 

35,151

 

 

1,430

 

 

51,553

 

 

 —

 

 

4,288

 

 

1,430

 

 

55,841

 

 

57,271

 

 

(10,551)

 

 

 

2010

F-47

  Initial Cost (b)Costs Capitalized Subsequent to Acquisition (c)Gross Amounts at Which Carried at Close of Period (d)   
Name of Center
thousands
LocationCenter TypeEncumbrances (a)LandBuildings and Improvements Land (e)Buildings and Improvements (e)(f)LandBuildings and Improvements (f)TotalAccumulated Depreciation (f)Date of ConstructionDate Acquired / Completed
Bridgeland       
BridgelandCypress, TXMPC$275,000 $260,223 $— $278,701 $1,580 $538,924 $1,580 $540,504 $(757)2004
Bridgeland PredevelopmentCypress, TXDevelopment— — 3,051 — — — 3,051 3,051 — 
Lakeland Village Center at BridgelandCypress, TXRetail— 2,404 11,135 — 3,456 2,404 14,591 16,995 (2,814)20152016
Lakeside RowCypress, TXMulti-family35,500 812 42,875 — 428 812 43,303 44,115 (5,611)20182019
Starling at BridgelandCypress, TXMulti-family31,155 1,511 55,117 — — 1,511 55,117 56,628 (271)20212022
WingspanCypress, TXDevelopment1 — 18,604 — — — 18,604 18,604 — 2022
Columbia     
ColumbiaColumbia, MDMPC— 457,552 — (440,927)— 16,625 — 16,625 — 2004
Columbia PredevelopmentColumbia, MDDevelopment— — 9,410 — — — 9,410 9,410 — 
10 - 70 Columbia Corporate CenterColumbia, MDOffice58,941 24,685 94,824 — 46,813 24,685 141,637 166,322 (35,027)2012 / 2014
Columbia Office PropertiesColumbia, MDOffice— 1,175 14,913 — (1,403)1,175 13,510 14,685 (6,443)2004 / 2007
Columbia Regional BuildingColumbia, MDRetail23,345 — 28,865 — 2,977 — 31,842 31,842 (8,129)20132014
Juniper ApartmentsColumbia, MDMulti-family117,000 3,923 112,435 — 2,414 3,923 114,849 118,772 (11,604)20182020
Lakefront DistrictColumbia, MDDevelopment— 400 80,053 (400)(47,539)— 32,514 32,514 — Various
MarlowColumbia, MDMulti-family50,881 4,088 120,882 — — 4,088 120,882 124,970 (154)20212022
Merriweather DistrictColumbia, MDDevelopment— — 76,808 — 546 — 77,354 77,354 — 2015
Merriweather District Area 3 RetailColumbia, MDRetail— 337 6,945 10 2,028 347 8,973 9,320 (449)20192020
One Mall NorthColumbia, MDOffice16,059 7,822 10,818 — 1,922 7,822 12,740 20,562 (2,389)2016
One MerriweatherColumbia, MDOffice49,800 1,433 72,745 — 1,617 1,433 74,362 75,795 (14,610)20152017
Two MerriweatherColumbia, MDOffice25,600 1,019 33,016 — 5,838 1,019 38,854 39,873 (7,171)20162017
6100 MerriweatherColumbia, MDOffice76,000 2,550 112,669 — 2,059 2,550 114,728 117,278 (11,741)20182019
South Lake Medical Office BuildingColumbia, MDDevelopment— — 4,711 — — — 4,711 4,711 — 2022
Teravalis
TeravalisPhoenix, AZMPC— 544,546 312 — — 544,546 312 544,858 (17)2021
Seaport     
85 South StreetNew York, NYMulti-family— 15,913 8,137 — 3,468 15,913 11,605 27,518 (5,541)2014
Seaport PredevelopmentNew York, NYDevelopment— — 11,224 — — — 11,224 11,224 — 2013
Tin BuildingNew York, NYRetail— — 200,401 — — — 200,401 200,401 (4,315)20172022
Pier 17New York, NYRetail— — 468,476 — 31,980 — 500,456 500,456 (89,988)20132018
Historic District Area / UplandsNew York, NYRetail— — 7,884 — 119,564 — 127,448 127,448 (26,425)20132016
250 Water StreetNew York, NYDevelopment100,000 — 179,471 — 63,055 — 242,526 242,526 — 2018
Summerlin     
1700 Pavilion (g)Las Vegas, NVOffice38,128 1,700 89,311 — — 1,700 89,311 91,011 (215)20212022
AristocratLas Vegas, NVOffice35,060 5,004 34,588 — 152 5,004 34,740 39,744 (5,489)20172018
Constellation ApartmentsLas Vegas, NVMulti-family24,200 3,069 39,759 — 1,691 3,069 41,450 44,519 (7,784)2017
Downtown Summerlin (g)(h)Las Vegas, NVRetail/Office1,933 30,855 364,100 — 27,315 30,855 391,415 422,270 (113,520)20132014 / 2015
Hockey Ground Lease (g)Las Vegas, NVOther180 — — 6,705 2,198 6,705 2,198 8,903 (293)2017
Las Vegas Ballpark (i)Las Vegas, NVOther44,802 5,318 124,391 — 1,064 5,318 125,455 130,773 (24,161)20182019
Summerlin South OfficeLas Vegas, NVDevelopment— — 10,386 — — — 10,386 10,386 — 2022

Table of Contents

HHC 2022 FORM 10-K | 111

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Initial Cost (b)

 

Costs Capitalized Subsequent to Acquisition (c)

 

Gross Amounts at Which Carried at Close of Period (d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Buildings

 

 

 

 

Buildings

 

 

 

 

Buildings

 

 

 

 

 

 

 

 

 

Date

 

 

 

 

 

 

 

 

 

 

and

 

 

 

 

and

 

 

 

 

and

 

 

 

 

Accumulated

 

Date of

 

Acquired /

Name of Center

    

Location

 

Encumbrances (a)

 

Land

    

Improvements 

    

Land (e)

 

Improvements (e)(f)

 

Land

 

Improvements (f)

 

Total

 

Depreciation (g)

 

Construction

 

Completed

2000 Woodlands Parkway

 

The Woodlands, TX

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

135

 

 

 —

 

 

135

 

 

135

 

 

 —

 

 

 

1997

1400 Woodloch Forest

 

The Woodlands, TX

 

 

 —

 

 

 —

 

 

 —

 

 

1,570

 

 

14,341

 

 

1,570

 

 

14,341

 

 

15,911

 

 

(4,102)

 

 

 

1981

The Woodlands Hills

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Woodlands Hills

 

Conroe, TX

 

 

 —

 

 

99,284

 

 

 —

 

 

9,176

 

 

 —

 

 

108,460

 

 

 —

 

 

108,460

 

 

 —

 

 

 

2014

Ward Village

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ae`o

 

Honolulu, HI

 

 

33,603

 

 

9,795

 

 

85,046

 

 

(9,795)

 

 

51,818

 

 

 —

 

 

136,864

 

 

136,864

 

 

 —

 

2016

 

 

Anaha

 

Honolulu, HI

 

 

 —

 

 

5,546

 

 

47,450

 

 

(5,546)

 

 

(8,609)

 

 

 —

 

 

38,841

 

 

38,841

 

 

(2)

 

2014

 

2017

Ke Kilohana

 

Honolulu, HI

 

 

 —

 

 

2,615

 

 

17,784

 

 

(2,615)

 

 

57,233

 

 

 —

 

 

75,017

 

 

75,017

 

 

 —

 

2016

 

 

Kewalo Harbor

 

Honolulu, HI

 

 

 —

 

 

 —

 

 

 

 

 

 —

 

 

7,535

 

 

 —

 

 

7,535

 

 

7,535

 

 

(1)

 

2017

 

 

Waiea

 

Honolulu, HI

 

 

 —

 

 

 —

 

 

20,812

 

 

 —

 

 

39,294

 

 

 —

 

 

60,106

 

 

60,106

 

 

(3)

 

2014

 

2017

Ward Predevelopment

 

Honolulu, HI

 

 

 —

 

 

 —

 

 

24,069

 

 

 —

 

 

72,172

 

 

 —

 

 

96,241

 

 

96,241

 

 

(59)

 

2013

 

2015

Ward Village

 

Honolulu, HI

 

 

238,718

 

 

164,007

 

 

89,321

 

 

(77,860)

 

 

186,930

 

 

86,147

 

 

276,251

 

 

362,398

 

 

(61,380)

 

 

 

2002

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AllenTowne

 

Dallas, TX

 

 

 —

 

 

25,575

 

 

 —

 

 

(25,575)

 

 

25,886

 

 

 —

 

 

25,886

 

 

25,886

 

 

 —

 

 

 

2006

Bridges at Mint Hill

 

Charlotte, NC

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

21,874

 

 

 —

 

 

21,874

 

 

21,874

 

 

 —

 

 

 

2007

Circle T Ranch and Power Center

 

Dallas/Fort Worth, TX

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

229

 

 

 —

 

 

229

 

 

229

 

 

 —

 

 

 

2005

Cottonwood Mall

 

Salt Lake City, UT

 

 

 —

 

 

7,613

 

 

42,987

 

 

(7,613)

 

 

(21,440)

 

 

 —

 

 

21,547

 

 

21,547

 

 

 —

 

 

 

2002

Landmark Mall

 

Alexandria, VA

 

 

 —

 

 

28,396

 

 

67,235

 

 

(28,396)

 

 

(12,652)

 

 

 —

 

 

54,583

 

 

54,583

 

 

(10)

 

 

 

2004

Outlet Collection at Riverwalk

 

New Orleans, LA

 

 

53,841

 

 

 —

 

 

94,513

 

 

 —

 

 

1,161

 

 

 —

 

 

95,674

 

 

95,674

 

 

(16,175)

 

 

 

2014

The Elk Grove Collection

 

Elk Grove, CA

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

10,396

 

 

 —

 

 

10,396

 

 

10,396

 

 

(5)

 

 

 

2003

110 North Wacker

 

Chicago, IL

 

 

18,926

 

 

 —

 

 

29,035

 

 

12,249

 

 

17,983

 

 

12,249

 

 

47,018

 

 

59,267

 

 

(34,165)

 

 

 

1957

West Windsor

 

Princeton, NJ

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

26,158

 

 

 —

 

 

26,158

 

 

26,158

 

 

(100)

 

 

 

2004

Total excluding Corporate, Deferred financing costs and Unamortized bond issuance costs

 

 

1,862,806

 

 

2,502,078

 

 

1,897,867

 

 

(581,867)

 

 

1,492,337

 

 

1,920,211

 

 

3,390,204

 

 

5,310,415

 

 

(303,617)

 

 

 

 

Corporate

 

Various

 

 

1,014,983

 

 

885

 

 

1,027

 

 

(885)

 

 

43,967

 

 

 —

 

 

44,994

 

 

44,994

 

 

(18,265)

 

 

 

 

Unamortized bond issuance costs

 

N/A

 

 

(6,898)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 

 

Deferred financing costs

 

N/A

 

 

(12,946)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 

 

 

 

Total

 

$

2,857,945

 

$

2,502,963

 

$

1,898,894

 

$

(582,752)

 

$

1,536,304

 

$

1,920,211

 

$

3,435,198

 

$

5,355,409

 

$

(321,882)

 

 

 

 

(a)

See description

FINANCIAL STATEMENT SCHEDULE
Table of Encumbrances in Note 8 – Mortgages, Notes and Loans PayableContents
Index to Financial Statements
  Initial Cost (b)Costs Capitalized Subsequent to Acquisition (c)Gross Amounts at Which Carried at Close of Period (d)   
Name of Center
thousands
LocationCenter TypeEncumbrances (a)LandBuildings and ImprovementsLand (e)Buildings and Improvements (e)(f)LandBuildings and Improvements (f)TotalAccumulated Depreciation (f)Date of ConstructionDate Acquired / Completed
Two Summerlin (g)Las Vegas, NVOffice40,873 3,037 47,104 — 1,908 3,037 49,012 52,049 (8,488)20172018
Summerlin (g)Las Vegas, NVMPC57,328 990,179 — 24,332 884 1,014,511 884 1,015,395 (489)2004
Summerlin PredevelopmentLas Vegas, NVDevelopment— — 10,697 — — — 10,697 10,697 — 
Tanager Apartments (g)Las Vegas, NVMulti-family58,648 7,331 53,978 — 87 7,331 54,065 61,396 (7,195)20172019
Tanager Echo (g)Las Vegas, NVDevelopment31,552 — 68,341 — — — 68,341 68,341 — 2021
The Woodlands
Creekside Park ApartmentsThe Woodlands, TXMulti-family37,730 729 40,116 — 578 729 40,694 41,423 (6,668)20172018
Creekside Park Medical PlazaThe Woodlands, TXOffice2,845 306 6,912 — — 306 6,912 7,218 (15)20222022
Creekside Park The GroveThe Woodlands, TXMulti-family57,000 1,876 52,382 — — 1,876 52,382 54,258 (3,399)20192021
Creekside Park WestThe Woodlands, TXRetail15,869 1,228 17,922 — 549 1,228 18,471 19,699 (1,924)20182019
HHC 242 Self-StorageThe Woodlands, TXOther— 878 6,802 — 1,123 878 7,925 8,803 (1,218)20152017
HHC 2978 Self-StorageThe Woodlands, TXOther— 124 5,498 — 2,065 124 7,563 7,687 (1,130)20162017
Houston Ground LeasesThe Woodlands, TXOther— 15,762 1,989 — — 15,762 1,989 17,751 (125)Various
One Hughes LandingThe Woodlands, TXOffice48,286 1,678 34,761 — (3,940)1,678 30,821 32,499 (9,880)20122013
Two Hughes LandingThe Woodlands, TXOffice46,332 1,269 34,950 — (3,618)1,269 31,332 32,601 (10,138)20132014
Three Hughes LandingThe Woodlands, TXOffice70,000 2,626 46,372 — 32,701 2,626 79,073 81,699 (19,843)20142016
1725 Hughes Landing BoulevardThe Woodlands, TXOffice61,207 1,351 36,764 — 38,203 1,351 74,967 76,318 (26,798)20132015
1735 Hughes Landing BoulevardThe Woodlands, TXOffice59,006 3,709 97,651 — (305)3,709 97,346 101,055 (30,541)20132015
Hughes Landing DaycareThe Woodlands, TXOther— 138 — — — 138 — 138 — 20182019
Hughes Landing RetailThe Woodlands, TXRetail32,912 5,184 32,562 — (36)5,184 32,526 37,710 (9,643)20132015
1701 Lake RobbinsThe Woodlands, TXRetail— 1,663 3,725 — 459 1,663 4,184 5,847 (996)2014
2201 Lake Woodlands DriveThe Woodlands, TXOffice— 3,755 — — 1,210 3,755 1,210 4,965 (535)2011
Lakefront NorthThe Woodlands, TXOffice50,000 10,260 39,357 — 15,544 10,260 54,901 65,161 (7,932)2018
One Lakes EdgeThe Woodlands, TXMulti-family67,535 1,057 81,768 — 597 1,057 82,365 83,422 (19,645)20132015
Two Lakes EdgeThe Woodlands, TXMulti-family105,000 1,870 96,349 — 460 1,870 96,809 98,679 (10,560)20182020
The Lane at WaterwayThe Woodlands, TXMulti-family37,500 2,029 40,033 — 352 2,029 40,385 42,414 (3,478)20192020
Memorial Hermann Medical Office BuildingThe Woodlands, TXOffice2,769 586 4,091 — — 586 4,091 4,677 (59)20212022
Millennium Six Pines ApartmentsThe Woodlands, TXMulti-family42,500 4,000 54,624 7,225 893 11,225 55,517 66,742 (13,294)2016
Millennium Waterway ApartmentsThe Woodlands, TXMulti-family51,000 15,917 56,002 — 2,471 15,917 58,473 74,390 (23,237)2012
8770 New TrailsThe Woodlands, TXOffice35,296 2,204 35,033 — 80 2,204 35,113 37,317 (4,731)20192020
9303 New TrailsThe Woodlands, TXOffice9,830 1,929 11,915 — 1,448 1,929 13,363 15,292 (3,884)2011
3831 Technology Forest DriveThe Woodlands, TXOffice19,712 514 14,194 — 1,813 514 16,007 16,521 (6,447)20142014
20/25 Waterway AvenueThe Woodlands, TXRetail14,500 2,346 8,871 — 65 2,346 8,936 11,282 (2,826)2011
Waterway Garage RetailThe Woodlands, TXRetail— 1,341 4,255 — 1,284 1,341 5,539 6,880 (1,599)2011
3 Waterway SquareThe Woodlands, TXOffice43,209 748 42,214 — (2,767)748 39,447 40,195 (14,907)20122013
4 Waterway SquareThe Woodlands, TXOffice28,786 1,430 51,553 — 7,199 1,430 58,752 60,182 (21,529)2011
The WoodlandsThe Woodlands, TXMPC— 269,411 9,814 (84,054)(9,744)185,357 70 185,427 (70)2011
The Woodlands PredevelopmentThe Woodlands, TXDevelopment— — 36,647 — — — 36,647 36,647 (611)
The Woodlands Parking GaragesThe Woodlands, TXOther— 5,857 — 2,496 14,967 8,353 14,967 23,320 (3,391)2011 / 2013
2000 Woodlands ParkwayThe Woodlands, TXRetail— — — — 655 — 655 655 (225)2016
The Woodlands Towers at the Waterway (j)The Woodlands, TXOffice347,446 11,044 437,561 (1)24,894 11,043 462,455 473,498 (45,425)2019
The Woodlands WarehouseThe Woodlands, TXOther13,700 4,480 4,389 — — 4,480 4,389 8,869 (538)2019
1400 Woodloch ForestThe Woodlands, TXOffice— 1,570 13,023 — 4,962 1,570 17,985 19,555 (6,311)2011
HHC 2022 FORM 10-K | 112
FINANCIAL STATEMENT SCHEDULE
Table of the ConsolidatedContents
Index to Financial Statements.

Statements
  Initial Cost (b)Costs Capitalized Subsequent to Acquisition (c)Gross Amounts at Which Carried at Close of Period (d)   
Name of Center
thousands
LocationCenter TypeEncumbrances (a)LandBuildings and ImprovementsLand (e)Buildings and Improvements (e)LandBuildings and ImprovementsTotalAccumulated Depreciation (f)Date of ConstructionDate Acquired / Completed
The Woodlands Hills
The Woodlands HillsConroe, TXMPC— 99,284 — 12,280 43 111,564 43 111,607 (16)2014
Ward Village
‘A‘ali‘iHonolulu, HICondominium— — 714 — 1,046 — 1,760 1,760 (26)20182021
Ae‘oHonolulu, HICondominium— — 1,162 — — — 1,162 1,162 (116)20162018
AnahaHonolulu, HICondominium— — 1,097 — — — 1,097 1,097 (139)20142017
Ke KilohanaHonolulu, HICondominium— — 656 — — — 656 656 (60)20162019
Kewalo Basin HarborHonolulu, HIOther11,232 — 24,116 — 22 — 24,138 24,138 (4,794)20172019
Kō‘ulaHonolulu, HICondominium— — 29,726 — — — 29,726 29,726 (10)20192022
The Park Ward VillageHonolulu, HIDevelopment— — 52,066 — — — 52,066 52,066 (2,047)2022
Victoria PlaceHonolulu, HIDevelopment47,155 — 208,168 — — — 208,168 208,168 (6,208)2021
WaieaHonolulu, HICondominium— — 1,206 — 365 — 1,571 1,571 (211)20142017
Ward PredevelopmentHonolulu, HIDevelopment1,845 — 135,068 — — — 135,068 135,068 (6,116)2013
Ward Village RetailHonolulu, HIRetail200,000 164,007 89,321 (103,657)307,414 60,350 396,735 457,085 (119,245)Various
Total excluding Corporate and Deferred financing costs2,752,188 3,021,046 4,631,835 (297,290)719,154 2,723,756 5,350,989 8,074,745 (853,630)
CorporateVarious2,050,000 885 1,027 (885)19,400 — 20,427 20,427 (14,070)
Deferred financing costsN/A(55,005)— — — — — 
Total$4,747,183 $3,021,931 $4,632,862 $(298,175)$738,554 $2,723,756 $5,371,416 $8,095,172 $(867,700)
(a)Refer to Note 7 - Mortgages, Notes and Loans Payable, Net in the Notes to Consolidated Financial Statements under Item 8 of this Form 10-K for additional information.
(b)Initial cost for projects undergoing development or redevelopment is cost through the end of first complete calendar year subsequent to the asset being placed in service.
(c)For retail and other properties, costs capitalized subsequent to acquisitions is net of cost of disposals or other property write‑downs. For MPCs, costs capitalized subsequent to acquisitions are net of the cost of land sales.
(d)The aggregate cost of land, building and improvements for federal income tax purposes is approximately $7.2 billion.
(e)Reductions in Land reflect transfers to Buildings and Improvements for projects which the Company is internally developing.
(f)Depreciation is based upon the useful lives in Note 1 - Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements under Item 8 of this Form 10-K.
(g)Encumbrances balance either represents or is inclusive of SIDs.
(h)Downtown Summerlin includes the One Summerlin office property, which was placed in service in 2015.
(i)Includes the Las Vegas Aviators.
(j)The Woodlands Towers at the Waterway includes 1201 Lake Robbins and 9950 Woodloch Forest.

Reconciliation of Real Estate
thousands202220212020
Balance as of January 1$7,776,555 $7,319,133 $7,268,288 
Change in land396,125 896,508 228,402 
Additions750,610 657,760 716,614 
Impairments— (13,068)(48,738)
Dispositions and write-offs and land and condominium costs of sales(828,118)(1,083,778)(845,433)
Balance as of December 31$8,095,172 $7,776,555 $7,319,133 
HHC 2022 FORM 10-K | 113
FINANCIAL STATEMENT SCHEDULE
Table of Contents
Index to Financial Statements
Reconciliation of Accumulated Depreciation
thousands202220212020
Balance as of January 1$743,311 $634,064 $507,933 
Depreciation Expense180,201 185,418 198,556 
Dispositions and write-offs(55,812)(76,171)(72,425)
Balance as of December 31$867,700 $743,311 $634,064 

HHC 2022 FORM 10-K | 114
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Index to Financial Statements
Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.  Controls and Procedures

DISCLOSURE CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) that are designed to provide reasonable assurance that information required to be disclosed in our reports to the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and our principal financial and accounting officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by SEC rules, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and our principal financial and accounting officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2022, the end of the period covered by this report. Based on the foregoing, our principal executive officer and principal financial and accounting officer concluded that our disclosure controls and procedures were effective as of December 31, 2022.

INTERNAL CONTROLS OVER FINANCIAL REPORTING

There were no other changes to our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management’s annual report on internal control over financial reporting is provided in Item 8. Financial Statements and Supplementary Data in this Annual Report on Form 10-K. The attestation report of the Company’s independent registered public accounting firm, KPMG LLP, regarding the Company’s internal control over financial reporting is also provided in Item 8. Financial Statements and Supplementary Data in this Annual Report on Form 10-K.


Item 9B.  Other Information

None.
HHC 2022 FORM 10-K | 115
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Index to Financial Statements

(b)

PART III

Item 10.  Directors, Executive Officers and Corporate Governance

The information required by Item 10 is incorporated by reference to the relevant information included in our proxy statement for our 2023 Annual Meeting of Stockholders.

Item 11.  Executive Compensation

The information required by Item 11 is incorporated by reference to the relevant information included in our proxy statement for our 2023 Annual Meeting of Stockholders.

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by Item 12 is incorporated by reference to the relevant information included in our proxy statement for our 2023 Annual Meeting of Stockholders.

Item 13.  Certain Relationships and Related Transactions, and Director Independence

The information required by Item 13 is incorporated by reference to the relevant information included in our proxy statement for our 2023 Annual Meeting of Stockholders.

Item 14.  Principal Accountant Fees and Services

The information required by Item 14 is incorporated by reference to the relevant information included in our proxy statement for our 2023 Annual Meeting of Stockholders.


HHC 2022 FORM 10-K | 116

Initial cost for projects undergoing development or redevelopment is cost at end

Table of first complete calendar year subsequentContents
Index to opening.

Financial Statements

(c)

PART IV

Item 15.  Exhibits, Financial Statement Schedule

(a)Financial Statements and Financial Statement Schedule.

The Consolidated Financial Statements and Schedule listed in the Index to this Form 10-K on page 63 are filed as part of this Annual Report. No additional financial statement schedules are presented as the required information is not applicable, not present in amounts sufficient to require submission of the schedule or because the information required is enclosed in the Consolidated Financial Statements and notes thereto.

(b)Exhibits.

For retail

Exhibit No.Description of Exhibit
3.1
Second Amended and other properties, costs capitalized subsequent to acquisitions is netRestated Certificate of cost of disposals or other property write‑downs. For MPCs, costs capitalized subsequent to acquisitions are netIncorporation of the costHoward Hughes Corporation (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed May 24, 2016)
3.2
3.3
Amendment No. 1 to the Amended and Restated Bylaws of The Howard Hughes Corporation (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed May 24, 2016)
3.4
Certificate of Designations of Series A Junior Participating Preferred Stock, filed with the Secretary of State of Delaware on February 29, 2012 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed February 29, 2012)
4.1
Indenture, dated as of March 16, 2017 by and between The Howard Hughes Corporation and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on March 21, 2017)
4.1.1
Second Supplemental Indenture, dated as of August 18, 2020, to the indenture dated as of March 16, 2017 and first supplemented as of June 15, 2017, by and among HHC Warehouse Holdings Company, LLC, HH Warehouse Land Holdings, LLC, The Howard Hughes Corporation and Wells Fargo Bank, National Association, as the trustee (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed on August 21, 2020)
4.1.2
Third Supplemental Indenture, dated as of October 2, 2020, to the indenture dated as of March 16, 2017, as first supplemented on June 15, 2017 and as further supplemented on August 18, 2020, among The Howard Hughes Corporation, HH Woodlands Tower Holdings, LLC, API/ HHC Lake Robbins Holding Company, LLC and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed on October 7, 2020)
4.1.3
Fourth Supplemental Indenture, dated as of February 2, 2021, to the indenture dated as of March 16, 2017, by and among The Howard Hughes Corporation, HHC Warehouse Holdings Company, LLC, HH Warehouse Land Holdings, LLC, HH Woodlands Tower Holdings, LLC, API/HHC Lake Robbins Holding Company, LLC, and Wells Fargo Bank, National Association, as the trustee (incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K, filed on February 4, 2021)
4.2
Indenture, dated as of August 18, 2020, by and among The Howard Hughes Corporation, HHC Warehouse Holdings Company, LLC, HH Warehouse Land Holdings, LLC and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on August 21, 2020)
4.2.1
First Supplemental Indenture, dated as of October 2, 2020, to the indenture dated as of August 18, 2020, among The Howard Hughes Corporation, HH Woodlands Tower Holdings, LLC, API/ HHC Lake Robbins Holding Company, LLC and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on October 7, 2020)
4.3
Indenture, dated as of February 2, 2021, by and among The Howard Hughes Corporation, HHC Warehouse Holding Company, LLC, HH Warehouse Land Holdings, LLC, HH Woodlands Tower Holdings, LLC, API/HHC Lake Robbins Holding Company, LLC, and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on February 4, 2021)
4.4
Indenture, dated as of February 2, 2021, by and among The Howard Hughes Corporation, HHC Warehouse Holding Company, LLC, HH Warehouse Land Holdings, LLC, HH Woodlands Tower Holdings, LLC, API/HHC Lake Robbins Holding Company, LLC, and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed on February 4, 2021)
HHC 2022 FORM 10-K | 117
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Index to Financial Statements

(d)

4.5
Form of Senior Indenture (incorporated by reference to Exhibit 4.3 to the Company’s Registration Statement on Form S-3, filed March 27, 2020)
4.6
Form of Subordinated Indenture (incorporated by reference to Exhibit 4.4 to the Company’s Registration Statement on Form S-3, filed March 27, 2020)
4.7
Form of Senior Note (incorporated by reference to Exhibit 4.5 to the Company’s Registration Statement on Form S-3, filed March 27, 2020)
4.8
Form of Subordinated Note (incorporated by reference to Exhibit 4.6 to the Company’s Registration Statement on Form S-3, filed March 27, 2020)
4.9*Form of Deposit Agreement
4.10*Form of Warrant Agreement
4.11*Form of Purchase Contract Agreement
4.12*Form of Unit Agreement
4.13+
Description of Securities of the Registrant
10.1
Form of indemnification agreement for directors and certain executive officers of The aggregate costHoward Hughes Corporation (incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K, filed November 12, 2010)
10.2
Registration Rights Agreement, dated November 9, 2010, between The Howard Hughes Corporation and Pershing Square Capital Management, L.P., Blackstone Real Estate Partners VI L.P., Blackstone Real Estate Partners (AIV) VI L.P., Blackstone Real Estate Partners VI.F L.P., Blackstone Real Estate Partners VI.TE.1 L.P., Blackstone Real Estate Partners VI.TE.2 L.P., Blackstone Real Estate Holdings VI L.P., and Blackstone GGP Principal Transaction Partners L.P. (incorporated by reference to Exhibit 99.4 to the Company’s Current Report on Form 8-K, filed November 12, 2010)
10.3**
Form of land, buildingRestricted Stock Agreement for Nonemployee Directors under The Howard Hughes Corporation 2010 Amended and improvementsRestated Incentive Plan (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 10-K, filed February 27, 2019)
10.4**
Form of Time-based Restricted Stock Agreement for federal income tax purposes is approximately $4.6 billion.

Executive Officers under The Howard Hughes Corporation 2010 Amended and Restated Incentive Plan (incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 10-K, filed February 27, 2019)
10.5**
Form of Performance-based Restricted Stock Agreement for Executive Officers under The Howard Hughes Corporation 2010 Amended and Restated Incentive Plan (incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 10-K, filed February 27, 2019)
10.6**
Form of Time-based Restricted Stock Agreement for Employees under The Howard Hughes Corporation Amended and Restated 2010 Incentive Plan (incorporated by reference to Exhibit 10.9 to the Company’s Current Report on Form 10-K, filed February 27, 2019)
10.7**
Form of Performance-based Restricted Stock Agreement for Employees under The Howard Hughes Corporation Amended and Restated 2010 Incentive Plan (incorporated by reference to Exhibit 10.10 to the Company’s Current Report on Form 10-K, filed February 27, 2019)
10.8**
Form of Time-based Restricted Stock Agreement for Executive Officers under The Howard Hughes Corporation 2010 Amended and Restated Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q, filed May 6, 2019)
10.9**
Form of Performance-based Restricted Stock Agreement for Executive Officers under The Howard Hughes Corporation 2010 Amended and Restated Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q, filed May 6, 2019)
10.10**
Form of Time-based Restricted Stock Agreement for Employees under The Howard Hughes Corporation Amended and Restated 2010 Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q, filed May 6, 2019)
10.11**
Form of Performance-based Restricted Stock Agreement for Employees under The Howard Hughes Corporation Amended and Restated 2010 Incentive Plan (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q, filed May 6, 2019)
HHC 2022 FORM 10-K | 118
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Index to Financial Statements

(e)

Reductions in Land reflect transfers

10.12**
Employment Agreement, dated as of November 6, 2017, between The Howard Hughes Corporation and Peter F. Riley (incorporated by reference to BuildingsExhibit 10.1 to the Company’s Current Report on Form 8-K, filed November 9, 2017)
10.13**
Amended and ImprovementsRestated Employment Agreement, dated as of February 21, 2018, between The Howard Hughes Corporation and David O’Reilly (incorporated by reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K, filed February 26, 2018)
10.14**
Restricted Stock Agreement, dated as of November 8, 2017, between The Howard Hughes Corporation and Peter F. Riley (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed November 9, 2017)
10.15**
Warrant Grant Agreement, dated as of June 16, 2017, between The Howard Hughes Corporation and David R. Weinreb (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed June 20, 2017)
10.16**
Warrant Grant Agreement, dated as of October 4, 2017, between The Howard Hughes Corporation and Grant Herlitz (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed October 5, 2017)
10.17**
Warrant Purchase Agreement, dated October 7, 2016, between The Howard Hughes Corporation and David O’Reilly (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed October 11, 2016)
10.18**
Saul Scherl offer letter, dated as of February 21, 2019 (incorporated by reference to Exhibit 10.21 to the Company’s Current Report on Form 10-K, filed February 27, 2019)
10.19
Loan Agreement dated as of September 29, 2011, by and among Victoria Ward, Limited along with certain Victoria Ward, Limited’s subsidiaries, as borrowers, Wells Fargo Bank, National Association, as Administrative Agent and lead lender, CIBC, First Hawaiian Bank, Bank of Hawaii and Central Pacific Bank, as lenders, and Wells Fargo Securities, L.L.C., as Sole Lead Arranger and Sole Bookrunner (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed October 4, 2011)
10.20
Loan Agreement dated as of July 15, 2014, by and among The Shops at Summerlin North, LP, The Shops at Summerlin South, LP, Wells Fargo Bank, National Association, as Administrative Agent and lead lender, U.S. Bank National Association, as Syndication Agent and a lender, the other lending institutions party thereto, and Wells Fargo Securities, L.L.C., as sole Lead Arranger and Sole Bookrunner (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed July 16, 2014)
10.21
Loan Agreement dated as of September 18, 2018, by and among Victoria Ward, Limited; Victoria Ward Center L.L.C.; Victoria Ward Entertainment Center L.L.C.; 1240 Ala Moana, LLC; Anaha Retail Holdings, LLC; Waiea Retail Holdings, LLC; 10 CCC, LLC; 20 CCC, LLC; 30 CCC, LLC; 10/20/30 CCC Parking Deck, LLC; 40 CCC, LLC; 40 CCC Parking Deck, LLC; 50 CCC, LLC; 60 CCC, LLC; 70 CC, LLC; 50/60/70 CCC Parking Deck, LLC; One Mall North, LLC; Crescent Area 1 Holdings, LLC; Crescent Area 1 Parking Deck 1, LLC; HL Champion Holding Company, LLC; Lakeland Village Holding Company, LLC; Waterway Hotel Holdings, LLC; HL-Hotel Holding Company, LLC; CSPV Holdings, LLC; 1701 Lake Robbins, LLC; Wells Fargo Bank, National Association, as administrative agent and a lender; Wells Fargo Securities, L.L.C., as sole lead arranger and sole book-runner; and the other lenders party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed September 24, 2018)
10.22**
The Howard Hughes Corporation 2010 Amended and Restated Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed June 14, 2012)
10.23**
Form of The Howard Hughes Corporation Deferred Compensation Plan (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K, filed September 17, 2014)
10.24**
The Howard Hughes Corporation Management Co., LLC Separation Benefit Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed August 16, 2017)
10.25**
Amendment to Employment Agreement, dated November 13, 2019, between Peter F. Riley and The Howard Hughes Corporation (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed November 14, 2019)
10.26**
Form of Time-based Restricted Stock Agreement for projects which we are internally developing.

Executive Officers under The Howard Hughes Corporation 2010 Amended and Restated Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, filed May 11, 2020)
10.27**
Form of Performance-based Restricted Stock Agreement for Executive Officers under The Howard Hughes Corporation 2010 Amended and Restated Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q, filed May 11, 2020)
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(f)

Includes all amounts related

10.28**
Form of Time-based Restricted Stock Agreement for Employees under The Howard Hughes Corporation 2010 Amended and Restated Incentive Plan (incorporated by reference to Developments.

Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q, filed May 11, 2020)
10.29**
Form of Performance-based Restricted Stock Agreement for Employees under The Howard Hughes Corporation 2010 Amended and Restated Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q, filed May 11, 2020)
10.30**
Saul Scherl Employment Letter, dated as of February 12, 2020 (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q, filed May 11, 2020)
10.31**
Time-based Restricted Stock Agreement, dated as of February 12, 2020, by and between The Howard Hughes Corporation and Saul Scherl (incorporated by Reference to Exhibit 10.6 to the Company’s Quarterly Report on From 10-Q, filed May 11, 2020)
10.32**
Performance-based Restricted Stock Agreement, dated as of February 12, 2020, by and between The Howard Hughes Corporation and Saul Scherl (incorporated by reference to Exhibit 10.7 to the Company’s Quarterly Report on From 10-Q, filed May 11, 2020)
10.33**
Amendment No. 1 to Nonqualified Employee Stock Option Agreement, dated as of February 12, 2020, by and between The Howard Hughes Corporation and Saul Scherl (incorporated by reference to Exhibit 10.8 to the Company’s Quarterly Report on Form 10-Q, filed May 11, 2020)
10.34
Share Purchase Agreement, dated March 27, 2020, by and among The Howard Hughes Corporation and Pershing Square Capital Management, L.P. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed March 31, 2020)
10.35**
Employment Separation Agreement and Release, dated as of February 8, 2020, by and between The Howard Hughes Corporation and Simon Treacy (incorporated by reference to Exhibit 10.10 to the Company’s Quarterly Report on Form 10-Q, filed May 11, 2020)
10.36**
The Howard Hughes Corporation 2020 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed May 20, 2020)
10.37**
First Amendment to Amended and Restated Employment Agreement dated June 24, 2020, between The Howard Hughes Corporation and David O’Reilly (incorporated by reference to Exhibit 10.1 to the Company’s Current Report Form 8-K filed June 25, 2020)
10.38**
Amendment No. 1 to Restricted Stock Agreements dated November 4, 2020 between The Howard Hughes Corporation and David O’Reilly (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed November 5, 2020)
10.39**
Amendment No. 1 to Restricted Stock Agreements dated November 4, 2020 between The Howard Hughes Corporation and Peter F. Riley (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed November 5, 2020)
10.40**
Second Amended and Restated Employment Agreement, dated December 1, 2020, between The Howard Hughes Corporation and David O’Reilly (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed December 2, 2020)
10.41**
Employment Agreement, dated December 1, 2020, between The Howard Hughes Corporation and L. Jay Cross (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed December 2, 2020)
10.42**
Employment Agreement, dated January 12, 2022, between the Howard Hughes Corporation and Carlos Olea (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed January 12, 2022)
10.43**
10.44**
Form of Time-Based Restricted Stock Award (Executive Officers without Employment Agreements) under The Howard Hughes Corporation 2020 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on From 10-Q, filed May 10, 2021)
10.45**
Form of Performance-Based Restricted Stock Award (Executive Officers with Employment Agreements) under The Howard Hughes Corporation 2020 Equity Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on From 10-Q, filed May 10, 2021)
10.46**
Form of Performance-Based Restricted Stock Award (Executive Officers without Employment Agreements) under The Howard Hughes Corporation 2020 Equity Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on From 10-Q, filed May 10, 2021)
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(g)

Depreciation is computed based upon

10.47**
Amended and Restated Performance-Based Restricted Stock Award Agreement, dated January 4, 2021, by and between The Howard Hughes Corporation and Saul Scherl (incorporated by reference to Exhibit 10.5 to the useful lives below.

Company’s Quarterly Report on From 10-Q, filed May 10, 2021)
10.48**
2021 Offer Letter, effective March 10, 2021, by and between The Howard Hughes Corporation and Saul Scherl (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on March 15, 2021)
10.49**
Form of Restricted Stock Agreement for Nonemployee Directors under The Howard Hughes Corporation 2020 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, filed August 4, 2021)
10.50**
Employment Agreement, effective April 19, 2021, by and between The Howard Hughes Corporation and Correne Loeffler (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed April 8, 2021)
10.51**
Separation and Release Agreement, by and between Correne S. Loeffler and The Howard Hughes Corporation (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed February 11, 2022)
21.1+
List of Subsidiaries
23.1+
Consent of KPMG LLP
23.2+
Consent of Ernst & Young LLP
24.1+
Power of Attorney
31.1+
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2+
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1+
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INSInline XBRL Instance Document -- the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH+Inline XBRL Taxonomy Extension Schema Document
101.CAL+Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB+Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE+Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF+Inline XBRL Taxonomy Extension Definition Linkbase Document
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*    To be filed by amendment to the Form S-3 filed on March 27, 2020 or by a Current Report on Form 8-K.
**    Management contract, compensatory plan or arrangement
+    Filed herewith

Attached as Exhibit 101 to this report are the following documents formatted in iXBRL (Inline Extensible Business Reporting Language): (i) the Consolidated Statements of Operations for the years ended December 31, 2022, 2021 and 2020, (ii) Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2022, 2021 and 2020, (iii) the Consolidated Balance Sheets as of December 31, 2022 and 2021, (iv) Consolidated Statements of Equity for the years ended December 31, 2022, 2021 and 2020, (v) the Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020, and (vi) the Notes to Consolidated Financial Statements.


Item 16.  Form 10-K Summary

Not applicable.
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(h)

Downtown Summerlin includes ONE Summerlin office property, which was placed in service in 2015.

SIGNATURES


F-48

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

THE HOWARD HUGHES CORPORATION

Table of Contents

Asset Type

/s/ Carlos A. Olea

Years

Location of Asset

Buildings and improvements

Carlos A. Olea

10 - 45

Buildings and Equipment

Equipment and fixtures

Chief Financial Officer

February 27, 2023
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

  5 - 10

Buildings and Equipment

Computer hardware and software, and vehicles

Signature

3 - 5

Title

Prepaid expenses and other assets, net

Date

Tenant improvements

Lesser of lease term or useful life

Prepaid expenses and other assets, net

Leasing costs

*

Related lease term

Chairman of the Board and Director 

Prepaid expensesFebruary 27, 2023

William Ackman
/s/ David R. O’ReillyChief Executive OfficerFebruary 27, 2023
David R. O’Reilly(Principal Executive Officer)
/s/ Carlos A. OleaChief Financial OfficerFebruary 27, 2023
Carlos A. Olea(Principal Financial and other assets, net

Accounting Officer)
*DirectorFebruary 27, 2023
Adam Flatto
*DirectorFebruary 27, 2023
Beth Kaplan
*DirectorFebruary 27, 2023
Allen Model
*DirectorFebruary 27, 2023
R. Scot Sellers
*DirectorFebruary 27, 2023
Steven Shepsman
*DirectorFebruary 27, 2023
Mary Ann Tighe
*DirectorFebruary 27, 2023
Anthony Williams
*/s/ David R. O’Reilly
David R. O’Reilly
Attorney-in-fact

 

 

 

 

 

 

 

 

 

 

Reconciliation of Real Estate

(In thousands)

    

2017

    

2016

    

2015

Balance at beginning of year

 

$

4,979,840

 

$

4,774,632

 

$

4,116,556

Change in land

 

 

93,833

 

 

122,446

 

 

95,095

Additions

 

 

790,183

 

 

830,896

 

 

834,346

Impairments

 

 

 —

 

 

(35,734)

 

 

 —

Dispositions and write-offs and land and condominium costs of sales

 

 

(508,447)

 

 

(712,400)

 

 

(271,365)

Balance at end of year

 

$

5,355,409

 

$

4,979,840

 

$

4,774,632

 

 

 

 

 

 

 

 

 

 

Reconciliation of Accumulated Depreciation

(In thousands)

    

2017

    

2016

    

2015

Balance at beginning of year

 

$

245,814

 

$

232,969

 

$

157,182

Depreciation Expense

 

 

116,401

 

 

81,878

 

 

82,275

Dispositions and write-offs

 

 

(40,333)

 

 

(69,033)

 

 

(6,488)

Balance at end of year

 

$

321,882

 

$

245,814

 

$

232,969

F-49

HHC 2022 FORM 10-K | 122